SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1995
Commission File No. 0-17342
LIVE ENTERTAINMENT INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4178252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15400 Sherman Way, Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 988-5060
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
As of July 24, 1995, there were 2,418,700 shares of the
Registrant's Common Stock, 4,197,302 shares of the Registrant's Series
B Cumulative Convertible Preferred Stock and 15,000 shares of the
Registrant's Series C Convertible Preferred Stock outstanding.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at
December 31, 1994 and June 30, 1995. . . . . . . . . . 1
Condensed Consolidated Statements of
Operations for the three and six months ended
June 30, 1994 and 1995 . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1994 and 1995 . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 4-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . 8-12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . .13-14
ITEM 3(b).DEFAULTS UPON SENIOR SECURITIES - DIVIDEND
ARREARAGE ON PREFERRED STOCK . . . . . . . . . . . . .14-15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . 15
<PAGE>
PART I - FINANCIAL INFORMATION
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
December 31, June 30,
1994 1995
ASSETS
Cash and cash equivalents, including restricted
cash of $4,663 and $655 . . . . . . . . . . . . . . $ 24,264 $ 51,268
Accounts receivable, less allowances of $19,469
in 1994 . . . . . . . . . . . . . . . . . . . . . . 1,950 --
Inventories. . . . . . . . . . . . . . . . . . . . . 7,842 7,211
Assets held for sale . . . . . . . . . . . . . . . . 17,916 14,739
Property and Equipment, net. . . . . . . . . . . . . 1,400 1,381
Film Rights, net of accumulated amortization
of $466,260 and $487,358. . . . . . . . . . . . . . 71,108 60,204
Other Assets . . . . . . . . . . . . . . . . . . . . 2,443 2,475
Goodwill, net of accumulated amortization of
$36,118 and $38,080 . . . . . . . . . . . . . . . . 29,871 27,909
$ 156,794 $ 165,187
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . $ 7,305 $ 7,207
Accrual for returns and advertising net of
accounts receivable of $8,649 in 1995 . . . . . . . -- 8,945
Accrued expenses and deferred revenue. . . . . . . . 11,483 14,595
Notes payable. . . . . . . . . . . . . . . . . . . . 3,333 10,000
Increasing Rate Senior Subordinated Notes due
1999, including capitalized interest of
$16,871 and $15,027 . . . . . . . . . . . . . . . . 56,871 55,027
Film rights obligations. . . . . . . . . . . . . . . 19,776 12,953
Liabilities related to assets held for sale. . . . . 13,542 13,365
Dividends payable. . . . . . . . . . . . . . . . . . 2,131 1,890
Income taxes payable and deferred income taxes . . . 6,636 6,544
Total liabilities . . . . . . . . . . . . . . . . . 121,077 130,526
Stockholders' Equity:
Series B Cumulative Convertible Preferred Stock--
authorized 9,000,000 shares; $1.00 par value;
$56,000,000 (1994) and $41,973,000 (1995)
liquidation preference; 5,600,000 (1994)
and 4,197,302 (1995) shares outstanding . . . . . . 5,600 4,197
Series C Convertible Preferred Stock--15,000 shares
authorized and outstanding; $1.00 par value;
$16,787,154 liquidation preference. . . . . . . . . 15 15
Common Stock--authorized 24,000,000 shares; $0.01
par value; 2,418,720 (1994) and 2,418,700(1995)
shares outstanding. . . . . . . . . . . . . . . . . 121 121
Additional paid-in capital . . . . . . . . . . . . . 136,656 131,040
Retained deficit . . . . . . . . . . . . . . . . . . (106,675) (100,712)
35,717 34,661
$ 156,794 $ 165,187
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Six Months
Ended June 30, Ended June 30,
1994 1995 1994 1995
Net Sales. . . . . . . . . . . . . . . . . . . .$29,151 $22,456 $47,416 $66,961
Cost of goods sold . . . . . . . . . . . . . . . 23,569 17,379 38,766 51,935
GROSS PROFIT. . . . . . . . . . . . . . . . . 5,582 5,077 8,650 15,026
Operating Expenses:
Selling, general and administrative expenses. . 4,450 3,160 8,166 6,767
Amortization of goodwill. . . . . . . . . . . . 981 981 1,962 1,962
5,431 4,141 10,128 8,729
151 936 (1,478) 6,297
Disposal of VCL/Carolco Communications GmbH:
Net Sales . . . . . . . . . . . . . . . . . . . 5,541 8,446 10,882 18,225
Costs and Expenses. . . . . . . . . . . . . . . 5,541 8,446 10,882 18,225
-- -- -- --
OPERATING PROFIT (LOSS) . . . . . . . . . . . 151 936 (1,478) 6,297
Interest and other income . . . . . . . . . . . 406 616 1,373 1,092
Interest expense. . . . . . . . . . . . . . . . (1,626) (393) (3,802) (826)
(LOSS) INCOME BEFORE INCOME TAXES . . . . . . (1,069) 1,159 (3,907) 6,563
Income tax expense. . . . . . . . . . . . . . . 300 100 300 600
NET (LOSS) INCOME . . . . . . . . . . . . . .$(1,369) $1,059 $(4,207) $5,963
Net (loss) income per common share:
Primary . . . . . . . . . . . . . . . . . . . $(1.70) $(0.38) $(3.50) $0.64
Fully diluted . . . . . . . . . . . . . . . . $(1.70) $ 0.08 $(3.50) $0.41
Weighted average number of shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . 2,419 2,442 2,419 2,432
Fully diluted . . . . . . . . . . . . . . . . 2,419 13,329 2,419 14,522
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Six Months Ended
June 30,
1994 1995
OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . . $(4,207) $ 5,963
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization of property
and equipment. . . . . . . . . . . . . . . . . . . 268 353
Amortization of goodwill. . . . . . . . . . . . . . 1,962 1,962
Amortization of film rights . . . . . . . . . . . . 18,681 29,904
Income taxes payable and deferred income taxes. . . 300 (92)
(Increase) decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . . 2,432 1,950
Inventories . . . . . . . . . . . . . . . . . . . 145 631
Assets held for sale. . . . . . . . . . . . . . . 9,555 3,177
Receivable from stockholder . . . . . . . . . . . 1,485 --
Other assets. . . . . . . . . . . . . . . . . . . 971 (32)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses
and deferred revenue . . . . . . . . . . . . . . (2,725) 3,014
Accrual for returns and advertising . . . . . . . 7,492 8,945
Liabilities related to assets held for sale . . . (9,528) (177)
Acquisition of and adjustment to film rights. . . (17,207) (19,000)
Film rights obligations incurred. . . . . . . . . 17,207 17,237
Payments on film rights obligations . . . . . . . (23,516) (24,060)
Cash provided by operating activities . . . . . 3,315 29,775
INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . (210) (334)
Cash used for investing activities. . . . . . . (210) (334)
FINANCING ACTIVITIES:
Issuance of long-term obligations . . . . . . . . . -- 10,000
Payments on long-term obligations . . . . . . . . . (1,815) (5,177)
Repurchase of Series B Cumulative
Preferred Stock . . . . . . . . . . . . . . . . . -- (5,460)
Dividends paid on Series B Cumulative
Preferred Stock . . . . . . . . . . . . . . . . . (2,250) (1,800)
Cash (used for) financing activities. . . . . . (4,065) (2,437)
Increase in cash and cash equivalents . . . . . (960) 27,004
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . . . . 42,358 24,264
Cash and cash equivalents at end of period. . . $ 41,398 $ 51,268
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
Note 1 - Summary of Significant Accounting Policies
Background and Operations: LIVE Entertainment Inc. ("LIVE" or
the "Company") was formed in 1988 and its largest ongoing
businesses are LIVE Home Video ("LHV") and LIVE Entertainment
International Inc. (formerly LEI-IVE Entertainment N.V.)("LEII"),
which acquire rights to theatrical motion pictures, children's
films and special interest programs (including CD-ROM) which they
market and distribute in all media to wholesalers, retailers and
consumers in the United States and Canada (LHV) and internationally
(LEII). As part of its international activities, the Company also
owns an 81% interest in VCL/Carolco Communications GmbH ("VCL"), a
home video distribution and marketing company headquartered in
Munich, Germany. VCL's year-end is November 30. In February 1995
the Company executed a preliminary agreement providing for the
disposal of its interest in VCL. The Company's continuing
operations are principally in a single business segment, the
distribution and retail sale of a broad variety of entertainment
software products.
Basis of Presentation: The accompanying consolidated financial
statements and footnotes are unaudited and are condensed, as
contemplated by the Securities and Exchange Commission under Rule
10-01 of Regulation S-X. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles,
but in the opinion of management of LIVE include all adjustments
(consisting only of normal recurring accruals) necessary to fairly
state the financial position and results of operations of LIVE.
The financial statements include the accounts of LIVE and its
subsidiaries - LHV, LEII and VCL. The financial statements reflect
LIVE's interests in VCL as "Assets Held For Sale" and "Liabilities
Related To Assets Held For Sale" and have been restated to account
for VCL as a disposal of a portion of a line of business. All
significant intercompany balances and transactions have been
eliminated.
LIVE suggests that these condensed consolidated financial
statements be read in conjunction with its consolidated financial
statements for the year ended December 31, 1994 and related notes
thereto included on Form 10-K filed with the Securities and
Exchange Commission.
Certain reclassifications of 1994 amounts have been made in
order to conform with the 1995 financial statement presentation.
Net (Loss) Income Per Common Share:
Primary:
Per share information has been determined on the basis of
2,418,722 weighted average number of shares outstanding for the
three and six months ended June 30, 1994 and 2,442,280 and
2,431,750 weighted average shares outstanding for the three and six
months ended June 30, 1995. The net (loss) income per common share
for the three and six months ended June 30, 1994 and 1995 gives
effect to the accretion of the redemption value of the Series B
Cumulative Convertible Preferred Stock ("Series B Preferred Stock")
of $1,800,000 and $2,400,000, and $1,259,000 and $2,830,000
respectively. The net (loss) income for the three and six months
ended June 30, 1994 and 1995 also gives effect to dividends of
$940,000 and $1,877,000 and $716,000 and $1,575,000, respectively,
on both the Series B Cumulative Convertible Preferred Stock
("Series B Preferred Stock") and the Series C Convertible Preferred
Stock ("Series C Preferred Stock").
Fully Diluted:
Per share information has been determined on the basis of
13,329,129 and 14,521,936 weighted average number of shares
outstanding for the three and six months ended June 30, 1995,
assuming conversion of the Series B Preferred Stock and the Series
C Preferred Stock. Such conversion was not assumed for the three
and six months ended June 30, 1994, because the effect thereof
would have been antidilutive.
Note 2 - Extension Of Distribution Agreement
On May 27, 1995, LHV entered into a three year extension of its
distribution agreement with Warner-Elektra-Atlantic Corporation
("WEA"). Under terms of agreement, WEA advanced $10,000,000 to
LHV, recoupable from distribution revenues during the three year
term of the agreement at $277,778 per month, including interest at
LIBOR, plus 0.2%. In order to obtain the advance, LHV granted WEA
a second priority security interest in substantially all of LHV's
assets. As of June 30, 1995, there was $10,000,000 outstanding.
Interest on the advance at June 30, 1995 was 6.26%.
Note 3 - Series B Preferred Stock
Although LIVE has no obligation to redeem any Series B Preferred
Stock, subject to the availability of funds and the prior approval
of its Board of Directors and its lenders, LIVE may acquire shares
of its Series B Preferred Stock from time to time, either through
private purchases or through open market purchases. On March 7,
1995, LIVE acquired, and subsequently retired, 1,400,000 shares of
Series B Preferred Stock at a price of $3.90 per share.
Note 4 - Litigation
On January 9, 1992, a purported class action lawsuit was filed
in the U.S. District Court, Central District of California, by
alleged stockholders of LIVE against LIVE, Carolco Pictures Inc.
("Carolco") and certain of LIVE's past and present directors and
executive officers. The complaint alleges, among other things,
that the defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder (a) by concealing the true value of certain
of LIVE's assets, and overstating goodwill, stockholders' equity,
operating profits and net income in LIVE's Form 10-K for the year
ended December 31, 1990, in its 1990 Annual Report and in its Forms
10-Q for the quarters ended March 31, 1991 and June 30, 1991, and
(b) by materially understating the true extent of the write off of
goodwill in connection with the sale of substantially all of the
assets of LIVE's wholly owned subsidiary, Lieberman Enterprises
Incorporated ("Lieberman"), to Handleman Company ("Handleman") in
July 1991. In addition, the complaint alleges that certain of the
defendants are liable as controlling persons under Section 20 of
the Exchange Act and alleges that certain other defendants are
liable for aiding and abetting the primary violations.
Subsequently, two additional lawsuits were filed in the U.S.
District Court, Central District of California, by alleged
stockholders of LIVE against the same persons and entities who were
defendants in the original actions, making substantially the same
allegations as were made in the first lawsuit. On March 30, 1992,
these lawsuits were consolidated. Further, in April 1992, an
amended complaint was filed in the consolidated action, lengthening
the alleged class period and adding as defendants certain
additional officers, directors and affiliates of LIVE and Carolco,
including Pioneer Entertainment (USA) L.P. (formerly Pioneer LDCA,
Inc.) ("PEA"), as well as a lender to LHV and Carolco. On June 17,
1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed. On January
27, 1993, a second amended complaint was filed in the consolidated
class action making additional and modified allegations against
certain of the defendants claiming they are liable as controlling
persons under Section 20 of the Exchange Act and claiming that
certain other defendants are liable for aiding and abetting the
primary violations. On April 19, 1993, the court issued a ruling
dismissing defendant PEA from this lawsuit.
In February 1992, a purported class action lawsuit was filed in
the U.S. District Court, District of Delaware, by an alleged holder
of Carolco's public debt, against LIVE, Carolco and certain
directors and executive officers of Carolco. The Delaware
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by concealing the true value of certain of LIVE's
assets, and overstating goodwill, stockholders' equity, operating
profits and net income in LIVE's Form 10-K for the year ended
December 31, 1990 and in its Forms 10-Q for the quarters ended
March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit
was transferred to the U.S. District Court, Central District of
California. The proceedings are being coordinated with the
consolidated action described in the preceding paragraph. On July
17, 1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed.
Discovery is currently taking place in both lawsuits.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described actions at this time.
However, LIVE and the other defendants believe that all these
lawsuits are without merit and intend to defend them vigorously.
Accordingly, no provision for any liability which may result has
been made in LIVE's condensed consolidated financial statements.
In the opinion of management, these actions, when finally concluded
and determined, will not have a material adverse effect upon LIVE's
financial position or results of operations.
Other than as described above, there are no material legal
proceedings to which LIVE or any of its subsidiaries are a party
other than ordinary routine litigation in the ordinary course of
business. In the opinion of management (which is based in part on
the advice of outside counsel), resolution of these matters will
not have a material adverse impact on LIVE's financial position or
results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1995 Compared to Three Months
Ended June 30, 1994
Continuing Operations
Net sales of LIVE decreased to $22,456,000 during 1995 compared
to $29,151,000 during 1994. The decrease of $6,695,000, or 23.0%,
is primarily attributable to a weaker video rental release schedule
in the second quarter of 1995 compared to the second quarter of
1994. The Company's home video division released three rental
titles during both the three months ended June 30, 1994 and 1995.
The second quarter of 1994 included the successful video release of
The Piano, for which there was no comparable title in the second
quarter of 1995.
Gross profits of LIVE decreased $505,000, or 9.0%, to $5,077,000
during 1995 compared to $5,582,000 during 1994. The decrease in
gross profit dollars was primarily related to the decrease in
sales. As a percentage of sales, gross profit increased to 22.6%
during 1995 from 19.1% during 1994, primarily due to lower
advertising and promotion costs during 1995.
Selling, general and administrative expenses of LIVE decreased
$1,290,000, or 29.0%, to $3,160,000 during 1995 compared to
$4,450,000 during 1994. As a percentage of sales, the amount
decreased to 14.1% during 1995 from 15.3% during 1994. The dollar
and percentage decrease is primarily a result of the recovery of a
previously written off bad debt from a former distributor during
the second quarter of 1995 and the Company's continuing efforts to
reduce overhead.
Interest and other income increased $210,000 or 51.7% to
$616,000 during 1995 compared to $406,000 during 1994, which was
primarily the result of interest earned on cash on hand.
Interest expense of LIVE decreased $1,233,000, or 75.8%, to
$393,000 during 1995 compared to $1,626,000 during 1994. Interest
expense decreased as a result of the redemption of $37,000,000 of
12% Subordinated Secured Notes due 1994 (the "12% Notes") during
September and October of 1994. The entire balance of the 12% Notes
was outstanding during the second quarter of 1994.
Preferred dividends of $716,000 in 1995 and $940,000 in 1994
represents the 5% cash dividend accrued on both the Series B
Preferred Stock and the Series C Preferred Stock, as well as, in
the case of the Series C Preferred Stock, additional 5% dividends
on accrued but unpaid dividends.
Discontinued Operations
As a result of the Board of Directors' decision to dispose of
the Company's interests in VCL, the results of operations for VCL
for the three months ended June 30, 1994 and 1995 have been
restated and accounted for as a disposal of a portion of a line of
business. Accordingly, a provision for losses during the phase-out
period totaling $3,885,000 for VCL has been accrued and accounted
for at December 31, 1993 and are not included in the results of
operations for the three months ended June 30, 1994 and 1995. Net
sales of VCL increased to $8,446,000 during the second quarter of
1995 compared to $5,541,00 during the second quarter of 1994. The
increase of $2,905,000, or 52.4%, was due primarily to a stronger
release schedule in 1995.
Six Months Ended June 30, 1995 Compared to Six Months Ended
June 30, 1994
Continuing Operations
Net sales of LIVE increased to $66,961,000 during the first six
months of 1995 compared to $47,416,000 during the first six months
of 1994. The increase of $19,545,000, or 41.2%, is primarily
attributable to a stronger release schedule in the first six months
of 1995 compared to the first six months of 1994. The Company's
home video division released nine rental titles during the six
months ended June 30, 1995 compared to seven rental titles during
the comparable period in 1994. The first six months of 1995
included the successful video release of Stargate, for which there
was no comparable title released in the first six months of 1994.
Gross profits of LIVE increased $6,376,000, or 73.7%, to
$15,026,000 during the first six months of 1995 compared to
$8,650,000 during the first six months of 1994. The increase in
gross profit dollars was primarily related to the increase in
sales. As a percentage of sales, gross profit increased from 18.2%
during 1994 to 22.4% during 1995, primarily due to higher margins
associated with the successful rental release of Stargate.
Selling, general and administrative expenses of LIVE decreased
$1,399,000, or 17.1%, to $6,767,000 during 1995 compared to
$8,166,000 during 1994. As a percentage of sales, the amount
decreased from 17.2% during 1994 to 10.1% during 1995. The dollar
and percentage decrease is primarily a result of the recovery of a
previously written off bad debt from a former distributor during
the second quarter of 1995 and the Company's efforts to reduce
overhead.
Interest and other income increased $281,000 or 20.5% to
$1,092,000 during 1995 compared to $1,373,000 during 1994, which
was primarily the result of interest earned on cash on hand.
Interest expense of LIVE decreased $2,976,000, or 78.3%, to
$826,000 during 1995 compared to $3,802,000 during 1994. Interest
expense decreased as a result of the redemption of $37,000,000 of
12% Subordinated Secured Notes due 1994 (the "12% Notes") during
September and October of 1994. The entire balance of the 12% Notes
was outstanding during the six months ended June 30, 1994.
Preferred dividends of $1,575,000 in 1995 and $1,877,000 in 1994
represents the 5% cash dividend accrued on both the LIVE Series B
Preferred Stock and the Series C Preferred Stock.
Discontinued Operations
As a result of the Board of Directors' decision to dispose of
LIVE's interest in VCL's operating results for the six months ended
June 30, 1995 have been restated and accounted for as a disposal of
a portion of a line of business. Accordingly, the provision for
losses during the phase-out period totaling $3,885,000 for VCL have
been accrued and accounted for at December 31, 1993 and are not
included in the results of operations for the six months ended
June 30, 1994 and 1995. Net sales of VCL increased to $18,255,000
during the six months ended June 30, 1995 compared to $10,882,000
during the six months ended June 30, 1994. The increase of
$7,373,000 or 67.8% was due primarily to a stronger release
schedule in 1995.
Liquidity and Capital Resources
Historically, the Company has funded its operations through a
combination of cash generated from operations, bank borrowings,
advances from distributors under distribution agreements and the
proceeds from the issuance of debt instruments. For the six months
ending June 30, 1995, the Company generated positive cash flow from
continuing operations of $29,775,000.
On May 27, 1995, LHV entered into a three year extension of its
distribution agreement with Warner-Elektra-Atlantic Corporation
("WEA"). Under terms of agreement, WEA advanced $10,000,000 to
LHV, recoupable from distribution revenues during the three year
term of the agreement at $277,778 per month, plus interest at
LIBOR, plus 0.2%. In order to obtain the advance, LHV granted WEA
a second priority security interest in substantially all of LHV's
assets. As of June 30, 1995, there was $10,000,000 outstanding.
Interest on the advance at June 30, 1995 was 6.26%.
Investing activities generated a negative cash flow during the
first quarter of 1995 of $334,000, primarily as a result of the
acquisition of property and equipment at LHV.
<PAGE>
LHV and its affiliates are a party to a three-year $30,000,000
revolving credit facility with Foothill Capital Corporation (the
"Foothill Credit Facility"). Borrowings available under the
Foothill Credit Facility are limited to $27,250,000 until
additional participant lenders are added to the Facility, at which
time the borrowings available will be increased to a maximum
$30,000,000. Borrowings under the Foothill Credit Facility are
secured by substantially all of the assets of LHV and its
affiliates. Outstanding borrowings under the Foothill Credit
Facility bear interest at the rate of 2% per annum above the
highest of the Bank of America, Mellon Bank or Citibank prime rate,
payable monthly. In no event will interest under the Foothill
Credit Facility be less than 7% per annum. The Foothill Credit
Facility provided for a closing fee of $500,000, an annual facility
fee of 1/4 of 1% and a commitment fee of 1/4 of 1% on any unused
amount. The Foothill Credit Facility also requires LHV to meet
certain financial ratios, and as of December 31, 1994 and June 30,
1995 LHV was in compliance with all such financial ratios. There
were no amounts outstanding under the Foothill Credit Facility as
of June 30, 1995.
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31, 1993, and June 30 and December 31, 1994 and June 30, 1995 were
accrued by LIVE, those dividends were not paid due to restrictions
imposed on LIVE by the terms of the Series B Preferred Stock, which
prohibit the payment of dividends on the Series C Preferred Stock
unless the aggregate amount of such dividends, together with all
cash dividends paid on the Series B Preferred Stock, does not
exceed the net income of LIVE (adding back specified net worth
exclusions) since the March 23, 1993 date of issuance of the Series
B Preferred Stock and Series C Preferred Stock. LIVE has had a
consolidated net loss for the period subsequent to March 23, 1993.
Thus, pursuant to the terms of the Series B Preferred Stock, LIVE
was prohibited from paying the June 30 and December 31, 1993, and
June 30 and December 31, 1994 and June 30, 1995 cash dividends on
the Series C Preferred Stock which, together with accrued and
unpaid dividends thereon, totalled $1,787,000 as of June 30, 1995.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993, and June 30
and December 31, 1994 and June 30, 1995 dividends, plus the
additional dividends thereon, as soon as it has sufficient net
income to permit such payment to occur or as soon as the Series B
Preferred Stock has been redeemed, provided that such payment does
not impair the capital of LIVE and is permitted under the Delaware
General Corporation Law ("DGCL").
LIVE experienced negative cash flows from financing activities
of $2,437,000 during the first half of 1995 primarily due to the
repurchase of 1,400,000 shares of the Company's Series B Cumulative
Preferred Stock, interest and principal payments on long term
obligations and payment of dividends on the Series B Cumulative
Preferred Stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 9, 1992, a purported class action lawsuit was filed
in the U.S. District Court, Central District of California, by
alleged stockholders of LIVE against LIVE, Carolco and certain of
LIVE's past and present directors and executive officers. The
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 promulgated thereunder (a) by concealing the
true value of certain of LIVE's assets, and overstating goodwill,
stockholders' equity, operating profits and net income in LIVE's
Form 10-K for the year ended December 31, 1990, in its 1990 Annual
Report and in its Forms 10-Q for the quarters ended March 31, 1991
and June 30, 1991, and (b) by materially understating the true
extent of the write off of goodwill in connection with the sale of
substantially all of the assets of LIVE's wholly owned subsidiary,
Lieberman Enterprises Incorporated ("Lieberman"), to Handleman
Company ("Handleman") in July 1991. In addition, the complaint
alleges that certain of the defendants are liable as controlling
persons under Section 20 of the Exchange Act and alleges that
certain other defendants are liable for aiding and abetting the
primary violations. Subsequently, two additional lawsuits were
filed in the U.S. District Court, Central District of California,
by alleged stockholders of LIVE against the same persons and
entities who were defendants in the original actions, making
substantially the same allegations as were made in the first
lawsuit. On March 30, 1992, these lawsuits were consolidated.
Further, in April 1992, an amended complaint was filed in the
consolidated action, lengthening the alleged class period and
adding as defendants certain additional officers, directors and
affiliates of LIVE and Carolco, including PEA, as well as a lender
to LHV and Carolco. On June 17, 1992, the U.S. District Court,
Central District of California, entered an order conditionally
certifying the class, subject to possible decertification after
discovery is completed. On January 27, 1993, a second amended
complaint was filed in the consolidated class action making
additional and modified allegations against certain of the
defendants claiming they are liable as controlling persons under
Section 20 of the Exchange Act and claiming that certain other
defendants are liable for aiding and abetting the primary
violations. On April 19, 1993, the court issued a ruling
dismissing defendant PEA from this lawsuit.
In February 1992, a purported class action lawsuit was filed in
the U.S. District Court, District of Delaware, by an alleged holder
of Carolco's public debt, against LIVE, Carolco and certain
directors and executive officers of Carolco. The Delaware
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by concealing the true value of certain of LIVE's
assets, and overstating goodwill, stockholders' equity, operating
profits and net income in LIVE's Form 10-K for the year ended
December 31, 1990 and in its Forms 10-Q for the quarters ended
March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit
was transferred to the U.S. District Court, Central District of
California. The proceedings are being coordinated with the
consolidated action described in the preceding paragraph. On July
17, 1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed.
Discovery is currently taking place in both lawsuits.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described actions at this time.
However, LIVE and the other defendants believe that all these
lawsuits are without merit and intend to defend them vigorously.
Accordingly, no provision for any liability which may result has
been made in LIVE's condensed consolidated financial statements.
In the opinion of management, these actions, when finally concluded
and determined, will not have a material adverse effect upon LIVE's
financial position or results of operations.
Other than as described above, there are no material legal
proceedings to which LIVE or any of its subsidiaries are a party
other than ordinary routine litigation in the ordinary course of
business. In the opinion of management (which is based in part on
the advice of outside counsel), resolution of these matters will
not have a material adverse impact on LIVE's financial position or
results of operations.
ITEM 3(b). DEFAULTS UPON SENIOR SECURITIES - DIVIDEND ARREARAGE
ON PREFERRED STOCK
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31, 1993, and June 30 and December 31, 1994 and June 30, 1995 were
accrued by LIVE, those dividends were not paid due to restrictions
imposed on LIVE by the terms of the Series B Preferred Stock, which
prohibit the payment of dividends on the Series C Preferred Stock
unless the aggregate amount of such dividends, together with all
cash dividends paid on the Series B Preferred Stock, does not
exceed the net income of LIVE (adding back specified net worth
exclusions) since the March 23, 1993 date of issuance of the Series
B Preferred Stock and Series C Preferred Stock. LIVE has had a
consolidated net loss for the period subsequent to March 23, 1993.
Thus, pursuant to the terms of the Series B Preferred Stock, LIVE
was prohibited from paying the June 30 and December 31, 1993, and
June 30 and December 31, 1994 and June 30, 1995 cash dividends on
the Series C Preferred Stock which, together with accrued and
unpaid dividends thereon, totalled $1,787,000 as of June 30, 1995.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993, and June 30
and December 31, 1994 and June 30, 1995 dividends, plus the
additional dividends thereon, as soon as it has sufficient net
income to permit such payment to occur or as soon as the Series B
Preferred Stock has been redeemed, provided that such payment does
not impair the capital of LIVE and is permitted under the DGCL.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.80 Fourth Amendment to License and Distribution Agreement
dated as of May 27, 1995 between LIVE Home Video Inc.,
LIVE America Inc., Vestron Inc., and LIVE Film and
Mediaworks Inc. and Warner-Elektra-Atlantic Corporation. *
10.81 Amended and Restated Intercreditor Agreement dated as of
May 27, 1995 between Foothill Capital Corporation and
Warner-Elektra-Atlantic Corporation.
10.82 New Security Agreement dated as of May 27, 1995 between
LIVE Home Video Inc., LIVE America Inc., Vestron Inc.,
LIVE Film and Mediaworks Inc., and Warner-Elektra-Atlantic
Corporation.
11 Computation of Income (Loss) Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
Reports on Form 8-K:. . . . . . . . . . . . . . None.
* Confidential treatment has been requested for a portion of this
document.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
LIVE ENTERTAINMENT INC.
Dated: August 1, 1995 By: /s/ RONALD B. CUSHEY
Ronald B. Cushey
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
10.80 Fourth Amendment to License and Distribution Agreement
dated as of May 27, 1995 between LIVE Home Video Inc.,
LIVE America Inc., Vestron Inc., and LIVE Film and
Mediaworks Inc. and Warner-Electra-Atlantic Corporation. *
10.81 Amended and Restated Intercreditor Agreement dated as of
May 27, 1995 between Foothill Capital Corporation and
Warner-Elektra-Atlantic Corporation.
10.82 New Security Agreement dated as of May 27, 1995 between
LIVE Home Video Inc., LIVE America Inc., Vestron Inc.,
LIVE Film and Mediaworks Inc., and Warner-Elektra-Atlantic
Corporation.
11 Computation of Income (Loss) Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
* Confidential treatment has been requested for a portion of this
document.
FOURTH AMENDMENT TO LICENSE AND DISTRIBUTION AGREEMENT
This Fourth Amendment to License and Distribution Agreement
("Fourth Amendment") is made and entered into as of May 27, 1995
between LIVE Home Video Inc., LIVE America Inc., Vestron Inc.,
each a Delaware corporation, and LIVE Film and Mediaworks Inc.
(formerly known as International Video Productions Inc.), a
California corporation (all such parties hereinafter individually
and collectively referred to as "Company"), on the one hand, and
Warner-Elektra-Atlantic Corporation, a New York corporation
(hereinafter referred to as "Distributor" and previously referred
to as "WEA Corp." in the Distribution Agreement), on the other
hand, with reference to the following facts:
R E C I T A L S
A. Distributor and Company have entered into that certain
License and Distribution Agreement dated as of May 11, 1992, and
heretofore amended as of June 8, 1992, as of June 23, 1994, and
as of September 1, 1994 ("Distribution Agreement").
B. Pursuant to the Distribution Agreement and that certain
security agreement, dated as of June 8, 1992, between Company, as
debtor, and Distributor, as secured party (the "Original Security
Agreement"), Distributor has been granted a security interest in
certain of Company's rights to manufacture, distribute and
exploit Videocassettes in the Territory for Home Use (as each
such capitalized term is defined in the Distribution Agreement)
relating to the titles listed on Schedule A to the Original
Security Agreement and certain related rights, all as more
specifically described in the Original Security Agreement (the
"Original WEA Collateral").
C. Pursuant to that certain Amended and Restated Loan and
Security Agreement, dated as of November 14, 1994, among Foothill
Capital Corporation ("Foothill"), Company and other affiliated
entities of Company, and as such may be amended, restated,
refinanced or replaced from time to time (the "Credit
Agreement"), Foothill extended certain credit to Company and its
affiliates, which extensions of credit are secured by a first
priority lien on and security interest in all of the assets and
property of Company and its affiliates (the "Foothill
Collateral") provided, however, that pursuant thereto and that
certain intercreditor agreement dated as of November 16, 1994
(the "Original Intercreditor Agreement"), among Foothill and
Distributor, Foothill agreed to subordinate its lien on and
security interest in the Foothill Collateral to Distributor's
first prior lien on and security interest in the Original WEA
Collateral, subject to the terms and provisions of the Original
Intercreditor Agreement.
D. Pursuant to that certain security agreement, dated and
to be executed concurrently herewith between Company, as debtor,
and Distributor, as secured party in the form of Exhibit A
annexed hereto (the "New Security Agreement"), and pursuant to
and subject to the terms and provisions of that certain
intercreditor agreement, dated and to be executed concurrently
herewith between Foothill and Distributor in the form of Exhibit
B annexed hereto (the "New Intercreditor Agreement"), Distributor
agrees to subordinate its security interest in the Original WEA
Collateral and Company agrees to grant to Distributor a second
priority lien on and security interest in the collateral
described in the New Security Agreement.
E. Pursuant to the Distribution Agreement, Distributor has
previously made two (2) advances to Company. The amount of the
first prior advance (hereinafter referred to as the "First
Advance" and heretofore referred to in the Distribution Agreement
as the "Advance") was Twenty Million Dollars ($20,000,000). The
balance (principal and interest) of the First Advance that
remained unrecouped by Distributor as of April 30, 1995 was One
Million One Hundred Eleven Thousand One Hundred Eleven Dollars
($1,111,111). The amount of the second prior advance
(hereinafter referred to as the "Second Advance"and heretofore
referred to in the Distribution Agreement as the "Additional WEA
Advance") was Four Million Nine Hundred Thousand Dollars
($4,900,000). The Second Advance (principal and interest) has
been fully recouped by or repaid to Distributor. Concurrently
upon the execution of this Fourth Amendment to the Distribution
Agreement, Distributor shall make a third advance ("Third
Advance") to Company of Ten Million Dollars ($10,000,000), and,
under certain circumstances as herein provided, Distributor shall
make a fourth advance ("Fourth Advance") to Company of Ten
Million Dollars ($10,000,000). The Third Advance and, if made,
the Fourth Advance shall each be chargeable against and
recoupable by deduction in computing the Net Proceeds payable to
Company in the manner indicated herein. As used herein or in the
Distribution Agreement, "Advances" shall refer to the principal
sum of any and all payments made by Distributor to Company which
are chargeable against and recoupable by deduction in computing
Net Proceeds due and payable to Company pursuant to the
Distribution Agreement. As used herein or in the Distribution
Agreement, "Monthly Deductions" shall mean the base deduction of
principal and interest which Distributor is authorized to charge
against and recoup by deduction in computing Net Proceeds due and
payable to Company in each monthly accounting rendered pursuant
to the Distribution Agreement until the Advances and all
applicable interest thereon are recouped by or repaid to
Distributor in full. A schedule of the Monthly Deductions
(separately specifying principal and interest) anticipated for
each accounting month during the Term of the Distribution
Agreement is attached hereto as Exhibit C.
F. Company and Distributor desire to amend, modify,
supplement and extend the Distribution Agreement upon the terms
and conditions herein contained.
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
following is hereby agreed to by the parties:
<PAGE>
1. Amendment to Distribution Agreement. The Distribution
Agreement is hereby modified and amended as follows:
a. Term.
i. In line three (3) of Paragraph 1(a) of the
Distribution Agreement, the date "May 29, 1998"
shall be substituted in the place and stead of
"May 26, 1995".
ii. The following shall be inserted at the end of
Paragraph 1(b) of the Distribution Agreement:
"'Contract Period' shall mean each period of
not more than eighteen (18) consecutive accounting
months (as such term is hereinafter defined)
during the Term hereof commencing on May 27, 1995.
The first Contract Period ('First Contract
Period') hereunder shall start on May 27, 1995 and
end on the earlier of either (i) November 29,
1996, (ii) the Early Termination Date (as such
capitalized term is defined in Paragraph 26
below), or (iii) the Reversion Date (as such
capitalized term is defined in Paragraph 28
below). If the Early Termination Date shall occur
prior to November 30, 1996, there shall not be a
second or third Contract Period hereunder. If the
Reversion Date, but not the Early Termination
Date, were to occur prior to November 30, 1996,
there shall not be a second Contract Period but
there shall be a third Contract Period hereunder.
The second Contract Period ('Second Contract
Period') hereunder, if any, shall start on
November 30, 1996 and end on the earlier of either
(i) May 29, 1998, (ii) the Early Termination Date,
or (iii) the Reversion Date. The third Contract
Period ('Third Contract Period') hereunder, if
any, shall start on the Reversion Date and end on
the earlier of either (i) May 29, 1998 or (ii) the
Early Termination Date. For purposes of
clarification, the Third Contract Period is not
dependent on there being a Second Contract Period
hereunder, and may immediately follow the First
Contract Period."
iii. The following shall be inserted at the end of
Paragraph 1(h) of the Distribution Agreement:
"From and after October 1, 1995,
"Videocassettes" shall also be deemed to mean five
inch (5") diameter compact discs utilizing the
standard for compression of full motion video
promulgated by the Motion Picture Experts Group
("MPEG") and, as of the date of the Fourth
Amendment, generally referred to as MPEG 2, as
such standard may be further developed, enhanced
and improved, solely intended for Home Use and
designed to be used in conjunction with a
reproduction apparatus, including, without
limitation, disc player and personal computer,
that causes a motion picture to be visible on the
screen of a monitor or television receiver for
viewing in a substantially linear manner ("Digital
Video Discs" or "DVDs"). DVDs shall not include
twelve inch (12") diameter laser videodiscs or
compact discs of any size designed pursuant to the
Red, Green or White Book standards promulgated by
MPEG. Notwithstanding anything herein to the
contrary, Distributor shall have the right to
distribute a particular Company Product in the DVD
format during the Term hereunder only if, as and
when Company shall elect to have such particular
Company Product distributed in the DVD format in
the Territory except if Company shall elect to
engage or appoint Pioneer Laser Corp. ("Pioneer")
or an affiliate of Pioneer to distribute DVDs of
such particular Company Product in the Territory
on Company's behalf."
iv. A new Paragraph 26 shall be added to the
Distribution Agreement, as follows:
"26. Company's Option to Terminate Term.
(a) In addition to any other rights or
remedies of Company under this Agreement, Company
shall have the option to cause the early
termination of the Term of this Agreement by
giving Distributor written notice to that effect
at any time after September 1, 1995 and on or
before November 30, 1997 ('Notice of
Termination'), in which event the Term shall end
on the Early Termination Date. As used herein,
the 'Early Termination Date' shall mean the later
of either (i) February 23, 1996, or (ii) the last
Friday of the sixth full calendar month following
the date the Notice of Termination is delivered to
Distributor, or (iii) the last Friday of any given
month which is specified in the Notice of
Termination to be the last month of the Term
(provided Company shall not be obliged to specify
any such date in the Notice of Termination);
provided, that in each case such Early Termination
Date shall be subject to automatic extension as
provided in Paragraph 26(b) hereof. Following
delivery of the Notice of Termination, Distributor
shall take all reasonable steps required in its
judgment for the transition of the distribution of
Company Product from Distributor to Company or its
designee to take effect as of the Early
Termination Date.
(b) If Company exercises its option to cause
the early termination of the Term, then,
notwithstanding anything to the contrary contained
in Paragraphs 4(j) or 4(k) hereof, that portion of
the total aggregate amount representing principal
of the Monthly Deductions which otherwise would
have been amortized by Distributor between the
Early Termination Date and the last day of the
Term plus interest thereon, plus any other amounts
due and payable by Company to Distributor
hereunder shall be recouped in five (5)
consecutive monthly deductions (the 'Additional
Monthly Deductions') from Net Proceeds otherwise
due Company hereunder, with the first Additional
Monthly Deduction to be made against Net Proceeds
which shall become due and payable to Company for
the fifth accounting month preceding the Early
Termination Date, and the last Additional Monthly
Deduction to be made against Net Proceeds which
shall become due and payable to Company for the
accounting month immediately preceding the Early
Termination Date (e.g., if the Early Termination
Date were to occur on November 28, 1997, then the
Early Termination Notice would have been required
to be delivered on or before May 31, 1997 and the
Additional Monthly Deductions would be made
against Net Proceeds payable to Company on the
five monthly accountings for Company Product
distributed hereunder during the period beginning
May 31, 1997 and ending October 31, 1997). All
five (5) Additional Monthly Deductions shall
consist of equal payments of principal plus
accrued interest at the Interest Rate. For
purposes of clarification, both the Additional
Monthly Deduction and the Monthly Deduction shall
be made against Net Proceeds payable to Company
for each of said five (5) accounting months. If
in any of said accountings the amount of Net
Proceeds payable to Company is less than the
amount which Distributor is permitted to deduct
and offset pursuant to this Paragraph 26(b), then
Distributor may deduct the full amount of such
shortfall in any succeeding accounting month.
Notwithstanding the foregoing, if a shortfall
shall exist for any of said five (5) accounting
months (or any accounting month in which this
Agreement would terminate as a result of an
extension of the Early Termination Date pursuant
to the first proviso of this sentence), and if and
to the extent Distributor has not recouped such
shortfall from Net Proceeds, if any, payable to
Company for the next succeeding accounting month,
then Company shall repay to Distributor the amount
of such shortfall within five (5) business days
following the end of such accounting month;
provided, however, that Company's failure to repay
any such shortfall to Distributor in accordance
with the foregoing requirements shall result in
the automatic and continued extension of the Early
Termination Date until the last Friday of the
accounting month immediately succeeding the
accounting month in which the Early Termination
Date would have occurred if the shortfall had not
occurred; provided, further, that if Company shall
pay any such amounts to Distributor in full during
the aforesaid five (5) business day cure period,
then, for purposes hereof, the payment of such
amounts shall be deemed to have been received by
Distributor during the accounting month
immediately preceding the start of such cure
period. Company and Distributor agree that if and
to the extent Company fails to repay any such
shortfall to Distributor in accordance with the
foregoing requirements, then Distributor shall
only have recourse for recoupment of such
shortfall to the rights granted to Distributor
under the New Security Agreement to the collateral
described therein, and Distributor shall have no
right to proceed against Company for payments of
any such deficiency. Immediately following
Distributor's recoupment or Company's repayment of
any such shortfall and all other amounts due and
payable by Company to Distributor hereunder and
under the New Security Agreement, Distributor
shall terminate its lien on and security interest
in the collateral described in the New Security
Agreement and shall execute and deliver to Company
any documents reasonably necessary to effectuate
such termination. Provided that the Additional
Monthly Deductions are recouped by or repaid to
Distributor in the manner hereinabove provided,
Distributor shall not exercise any Distribution
Rights for Company Product for which initial
shipments are scheduled on or after the Early
Termination Date, as the same may have been
extended as herein provided."
b. Company's Tradenames and Logos. The following shall be
added at the end of Paragraph 1(i) of the Distribution
Agreement:
"Notwithstanding anything to the contrary
contained herein, Distributor's use of the
"Carolco Home Video" tradename and logo shall be
limited to use in packaging, advertising and
promotional materials that pertain to
Videocassettes which Company has, prior to the
date of the Fourth Amendment, chosen or shall,
after the date of the Fourth Amendment, choose to
market bearing the "Carolco Home Video" tradename
and logo. Company acknowledges that it intends to
market Videocassettes embodying the motion picture
tentatively titled "Cutthroat Island" bearing the
"Carolco Home Video" tradename and logo, provided
that any failure or inability of Company to do so
shall not constitute a default hereunder."
c. Interactive CDs.
i. Paragraph 1 of the Distribution Agreement is
hereby amended by the insertion of a new
subparagraph (l), as follows:
"(l) 'Interactive CDs' shall mean five inch
(5") diameter CD-Roms (compact discs - read only
memory) solely intended for Home Use and designed
to be used solely in conjunction with the CD-Rom
drive of personal computers, which embody an
original expression of authorship in the literary,
scientific or artistic domain (whatever may be the
mode or form of its expression) consisting
primarily of a presentation communicated to a user
through the combination of two or more media of
expression, whether textual, audio, pictorial,
graphical or audiovisual, where a significant
characteristic of the presentation is the ability
of the user to manipulate the content of the
presentation by means of a computing device in
real time and in a nonlinear fashion. Interactive
CDs shall not include any laser or capacitance
disc or comparable optical or mechanical storage
device nor any optical and electronic storage
device (e.g., videodisc, compact disc, DVD)
designed to be used in conjunction with a
reproduction apparatus, including, without
limitation, videodisc player, CD-I player and
personal computer, that causes a motion picture to
be visible on the screen of a monitor or
television receiver for viewing in a substantially
linear manner."
ii. A new Paragraph 27 shall be added to the
Distribution Agreement, as follows:
"Interactive CDs.
(a) During the Term of this Agreement,
Company shall have the option ('CD Option') to
include within its license hereunder all the
Interactive CDs which Company shall first make
available for sale or rental in retail outlets in
the Territory at anytime during the Term following
the exercise by Company of the CD Option. Company
may exercise the CD Option by sending Distributor
written notice to that effect (the, 'CD Option
Notice') at any time during the Term. With
respect to each Interactive CD embodying Company
Product, Company shall also inform Distributor in
writing whether or not Company chooses to have
Distributor perform technical support services for
that particular title. Upon delivery of the CD
Option Notice, if ever, Distributor shall, as soon
as reasonably practicable, undertake to perform
(i) all distribution services reasonably required
to support Distributor's sales operations in the
Territory on behalf and for the account of
Company, including each and every service
specifically described in Paragraph 2 hereof which
can be reasonably performed with regards to
Interactive CDs, and, at Company's choosing with
respect to any particular Interactive CD embodying
Company Product, (ii) all technical support
services by such methods or manners (e.g., via
toll-free telephone, on-line services or
otherwise) which Company reasonably requires
Distributor to make available to the purchasers
(end users) of any such Interactive CD; provided
that Distributor shall not be required to perform
any technical support services by any method or
manner which it does not then offer to provide to
any third parties for whom Distributor distributes
Interactive CDs (other than an Affiliate of
Distributor (as the term "Affiliate" is defined in
Rule 1-02 of Regulation S-X under the Securities
Act of 1933, as amended)). Notwithstanding
anything contained herein to the contrary, the
right to distribute Interactive CDs embodying
Company Product for Home Use by means of
transmissions over the Internet, on-line services,
telecommunications, coaxial or fiber-optic cable,
or similar means of delivery, or for any purpose
other than Home Use, is expressly reserved to
Company.
(b) If Company chooses to have Distributor
perform technical support services for any
particular Interactive CD embodying Company
Product, then Company may at any time thereafter
cause Distributor to discontinue performing such
technical support services for that particular
title by sending to Distributor not less than
thirty (30) days advance written notice to that
effect; provided that any amounts owed by Company
to Distributor pursuant to the Technical Support
Surcharge (as defined herein) shall have been
recouped by or repaid to Distributor in full.
(c) If Company exercises the CD Option, then
Company may at any time thereafter terminate its
license hereunder with respect to all the
Distribution Rights to all Interactive CDs
embodying Company Product by sending to
Distributor not less than six (6) months advance
written notice to that effect (the, 'CD
Termination Notice'); it being understood and
agreed that Company shall not be obligated to
include in its license hereunder any Interactive
CDs embodying Company Product which Company shall
first make available for sale or rental in retail
outlets in the Territory on or after the date the
CD Termination Notice is delivered to Distributor
unless Distributor shall have commenced sales
solicitation of any such Interactive CD prior to
the date the CD Termination Notice is delivered.
During the six (6) months from and after the date
the CD Termination Notice is delivered,
Distributor shall only have the right to
distribute the Interactive CDs embodying Company
Product which Company first made available for
sale or rental in retail outlets in the Territory
prior to the date the CD Termination Notice is
delivered or for which Distributor had commenced
sales solicitation prior to the date the CD
Termination Notice is delivered.
(d) Nothing contained herein shall be
construed as to require Company to grant and
license to Distributor any Distribution Rights to
Interactive CDs embodying Company Product unless
and until Company shall exercise the CD Option.
However, for purposes of construing each party's
rights and obligations with respect to those
Interactive CDs embodying Company Product which
Company elects to include in its license
hereunder, the parties agree that the words 'or
Interactive CDs' shall be deemed to be inserted
immediately following the word 'Videocassettes'
wherever such word appears in this Agreement
except in Paragraph 1(h), 4(a)(i)(A) and this
Paragraph 27.
(e) If at any time prior to the expiration
or termination of the Term hereof, Distributor has
entered or shall enter into any Interactive CD
distribution agreement or arrangement (whether
written or oral) with any third party other than a
Related Entity of Distributor, and in the event
any such agreement or arrangement contains any
fees for the provision of distribution services
(i.e., the Fulfillment Services and Additional
Services when taken as a whole) or any fees or
charges for the provision of technical support
services which are more favorable to such third
party than the Distribution Fee or Technical
Support Surcharge pursuant to Paragraph 4(a)(i)(B)
hereof, then Distributor shall immediately notify
Company of any such more favorable fees or charges
(irrespective of whether Company has theretofore
exercised the CD Option) and Company shall have
the right, but not the obligation, to modify this
Agreement to include such more favorable fees or
charges retroactively to the later of either the
date upon which Distributor shall have commenced
distribution of Interactive CDs embodying Company
Product hereunder or the date upon which such more
favorable provisions first became effective in any
such agreement."
d. Distribution Fee. Effective as of the accounting month
beginning May 28, 1995, Paragraph 4(a)(i) of the
Distribution Agreement shall be deleted in its entirety
and substituted in its place and stead shall be new
Paragraphs 4(a)(i)(A), (B), (C), (D) (E), (F), (G) and
(H) as follows:
"4(a)(i)(A) With respect to Videocassettes
distributed hereunder, a Fulfillment Distribution Fee
equal to xxxxx percent (xxx%) plus an Additional
Distribution Fee equal to xxxxx percent (xxx%) except
as provided in Paragraph 4(a)(i)(G) below, each
calculated on the net amounts invoiced hereunder during
each accounting month.
(B) With respect to Interactive CDs
distributed hereunder, a Fulfillment Distribution Fee
equal to xxxxx (xxx%) plus an Additional Distribution
Fee equal to xxxxx percent (xxx%) except as provided in
Paragraph 4(a)(i)(G) below, each calculated on the net
amounts invoiced hereunder during each accounting
month. Distributor shall additionally charge and
deduct an amount equal to xxxxx percent (xxx%) of the
net amounts invoiced hereunder during each accounting
month only with respect to those Interactive CDs
distributed hereunder for which Distributor performs
technical support services for such particular
Interactive CD ('Technical Support Surcharge').
(C) If the total net amounts invoiced
by Distributor hereunder in any Contract Period exceed
xxxxx Dollars ($xxxxx), then the Additional
Distribution Fee shall be subject to reduction by
certain volume discounts, if applicable ('Applicable
Volume Discounts'), as follows: A discount of xxxxx
percent (xxx%) on all net amounts invoiced in any
Contract Period from xxxxx Dollars ($xxxxx) to xxxxx
Dollars ($xxxxx), and a discount of xxx percent (xxx%)
on all net amounts invoiced during any Contract Period
in excess of xxxxx Dollars ($xxxxx).
(D) Notwithstanding the provisions of
Paragraph 4(a)(i)(C) hereof and in lieu of Distributor
deducting the Applicable Volume Discounts from the
Additional Distribution Fee in the manner indicated
therein, solely for purposes of interim accountings,
the parties shall assume that the total net amounts
invoiced during each Contract Period shall equal or
exceed xxxxx Dollars ($xxxxx) and that during each
Contract Year the Applicable Volume Discounts will be
earned to their fullest possible extent. Accordingly,
there shall be an average volume discount ('Average
Volume Discount') of xxxxx percent (xxx%) on all net
amounts invoiced by Distributor hereunder during each
Contract Period. The Average Volume Discount shall be
deducted from the Additional Distribution Fee in each
accounting month during each Contract Period. However,
if the total net amounts invoiced by Distributor
hereunder for any Contract Period shall not equal or
exceed xxxxx Dollars ($xxxxx), then Distributor may
deduct from Net Proceeds becoming due and payable to
Company in any succeeding accounting month, if any, an
amount equal to the difference between (i) the amount
of the total Applicable Volume Discounts which would
otherwise have been deducted from the Additional
Distribution Fee based on the total net amounts
invoiced by Distributor hereunder during such Contract
Period, and (ii) the amount of the total Average Volume
Discount deducted from the Additional Distribution Fee
based on the total net amounts invoiced by Distributor
hereunder during such Contract Period. Notwithstanding
the foregoing, following the termination or expiration
of the Term of this Agreement, within five (5) business
days following such termination, Company shall repay to
Distributor an amount equal to the difference between
(i) and (ii) above only if and to the extent Distributor
has not recouped such difference from Net Proceeds.
(E) As used herein, the term
'Fulfillment Distribution Fee' shall refer to the fee
charged by Distributor for the provision of the each of
the following services hereunder: order entry; customer
service; warehousing and inventory management; picking
and packing for shipment; transhipping and freight
between Distributor's branch warehouses; shipping and
freight of Videocassettes or Interactive CDs embodying
Company Product and 'point-of-purchase' materials to
customers; billing and collection of receivables
including credit checking and assuming the risk of bad
debts; taking physical inventories and similar
fulfillment services performed by Distributor hereunder
('Fulfillment Services'). Company and Distributor
agree that the amount of the Fulfillment Distribution
Fee fairly and reasonably represents the actual costs
and expenses, excluding overhead expenses, which
Distributor incurs with respect to the provision of
Fulfillment Services. As used herein, the term
'Additional Distribution Fee' shall refer to the fee
charged by Distributor for the provision of all
services hereunder except for technical support
services for Interactive CDs, if applicable, and
Fulfillment Services and is inclusive of a charge for
Distributor's overhead expenses and profit. As used
herein, the terms 'Fulfillment Distribution Fee' and
'Additional Distribution Fee' shall refer to the
Fulfillment Distribution Fee or the Additional
Distribution Fee, as the case may be, applicable to the
distribution hereunder of either Videocassettes or
Interactive CDs, as the context shall require. As used
herein, the term 'Distribution Fee' shall refer to the
Fulfillment Distribution Fee, the Additional
Distribution Fee and, if applicable, the Technical
Support Surcharge, combined. Distributor shall
separately account for the total Fulfillment
Distribution Fee, the total Additional Distribution
Fee, the total Average Volume Discount and, if
applicable, the total Technical Support Surcharge in
each monthly accounting.
(F) Shipments of Videocassettes or
Interactive CDs embodying Company Product made by
Distributor to its customers during any accounting
month, Contract Year or Contract Period, as the case
may be, shall be deemed to have been invoiced in such
accounting month, Contract Year or Contract Period, as
the case may be. Distributor shall send invoices to
its customers in respect of Videocassettes or
Interactive CDs embodying Company Product immediately
following shipment thereof.
(G) The parties have identified and, in
accordance with the last sentence of this Paragraph,
may from time to time hereafter identify, in Exhibit D
annexed hereto, certain customers by name ("Special
Accounts"). Distributor acknowledges that Company
performs significant and extraordinary sales services
in connection with the distribution of Videocassettes
or Interactive CDs embodying Company Product to Special
Accounts. In recognition thereof, effective as of the
accounting month beginning May 28, 1995, the Additional
Distribution Fee on the net amounts invoiced to Special
Accounts during any accounting month shall be reduced
to xxxxx percent (xxx%). At the request of either
party, but neither party shall have the right to make
any such request more frequently than once every six
months, the parties make a good faith determination
whether any customers should be added to or stricken
from Exhibit D; provided, however, that any changes to
Exhibit D shall require the parties' mutual consent and
shall be effective only on a prospective basis. For
the avoidance of doubt, the parties agree that this
Paragraph shall not apply to any Videocassettes or
Interactive CDs embodying Company Product which Company
distributes to any of the Special Accounts in the
exercise of any of Company's reserved rights set forth
in Paragraph 8 hereof even if Company desires to ship
any such Videocassettes or Interactive CDs directly
from Distributor's warehouses to any of the Special
Accounts, in which event the provisions of Paragraph
8(c) hereof shall apply.
(H) Effective from and after the first
accounting rendered after the execution of the Fourth
Amendment to this Agreement, in each monthly
accounting, the amount of the Additional Distribution
Fee shall be reduced by the sum of xxxxx Dollars
($xxxxx)."
e. Warehousing Fee. The following shall be inserted at
the end of Paragraph 4(a)(iv) of the Distribution
Agreement: "Seasonal inventory shall be exempted from
the aforesaid warehousing fee."
f. P.O.P. Freight Costs. Effective from and after the
first accounting rendered after the execution of the
Fourth Amendment to this Agreement, the words "...in
excess of xxxxx Dollars ($xxxxx)..." in the first and
second lines of Paragraph 4(a)(vi) of the Distribution
Agreement shall be stricken.
g. Shipping Costs. Effective as of the accounting month
beginning May 28, 1995, Paragraph 5(b) of the
Distribution Agreement shall be amended by striking in
the first sentence thereof beginning with the word
"reimburse," and ending with the word "incremental" in
the eighth line thereof, and substituting in its place
and stead, the following: "...pay or reimburse Company
for any and all... Additionally, the following shall
be added at the end of Paragraph 5(b) of the
Distribution Agreement:
"If Distributor shall elect to ship Videocassettes
to its customers directly from Company's plant (which,
as of the date of the Fourth Amendment, Distributor is
contemplating doing with regards to initial shipments
of rental Videocassettes of Company Product), then the
risk of loss shall remain with the Company until
Videocassettes leave the Company's plant (at which
point Distributor shall bear the risk of loss) and
Distributor shall solely be responsible for any
freight, insurance and handling charges attendant to
the shipment of such Videocassettes to any locations
from Company's plant."
h. Cooperative Advertising Credit. Effective as of the
accounting month beginning May 28, 1995, Paragraph 4(b)
of the Distribution Agreement shall be deleted in its
entirety.
i. Advance(s).
i. All references to "the Advance" or the
"Additional WEA Advance" in the Distribution
Agreement shall refer to the First Advance and the
Second Advance, respectively.
ii. Paragraph 4(d) of the Distribution Agreement shall
be deleted in its entirety and substituted in its
place and stead shall be the following:
"If Distributor does not recoup any
recoupable amount in any accounting month, such
unrecouped amount shall be added to the amount
recoupable in the next accounting month or any
subsequent accounting month. Except as provided
in Paragraph 26(b) hereof, Company shall repay to
Distributor the unrecouped amount in any
particular accounting month (including any
accounting month in which this Agreement would
terminate as a result of an extension of the Term
pursuant hereto) within five (5) business days
following the end of such accounting month, only
if and to the extent (i) Distributor has not
recouped such amount from the Monthly Deductions
for the next succeeding accounting month or (ii)
the entire amount of all Advances together with
all applicable interest thereon, has not been
recouped from the Monthly Deduction in the last
and final accounting month during the Term. If
Company fails to repay all or any portion of such
unrecouped amounts to Distributor in accordance
with the foregoing requirements, then, in addition
to whatever rights or remedies Distributor may
have at law, in equity or otherwise, the Term
shall be automatically extended to the last Friday
of the accounting month immediately succeeding the
accounting month in which the Termination Date
would have occurred if the shortfall had not
occurred; provided, further, that if Company shall
pay any such amounts to Distributor in full during
the aforesaid five (5) business day cure period,
then, for purposes hereof, the payment of such
amounts shall be deemed to have been received by
Distributor during the accounting month
immediately preceding the start of such cure
period."
iii. Paragraph 4(e) of the Distribution Agreement shall
be deleted in its entirety and substituted in its
place and stead shall be the following:
"Distributor hereby acknowledges that the
Second Advance and all applicable interest thereon
has been recouped by or repaid to Distributor in
full and that Distributor's lien on and security
interest in the Additional WEA Security has
terminated. Unless Distributor has done so
already, immediately following the execution of
the Fourth Amendment to this Agreement,
Distributor shall execute UCC termination
statement(s) and/or a termination of mortgage of
copyright with respect thereto. Company shall pay
all reasonable expenses incident to the
preparation, recordation and/or filing of any such
instruments."
iv. Paragraph 4 of the Distribution Agreement is
hereby amended by the insertion of a new
subparagraph (j), as follows:
"(j) Conditioned upon (i) Distributor's prior
receipt of a fully executed copy of (A) the New
Security Agreement as described in the recitals in
the Fourth Amendment to this Agreement and all
representations and warranties set forth therein
being true and correct as of the date thereof, and
(B) the New Intercreditor Agreement as described
in the recitals in the Fourth Amendment to this
Agreement, and (ii) Company having taken all
action then required of Company under the New
Security Agreement, Distributor shall advance to
Company upon the execution of the Fourth Amendment
to this Agreement the sum of Ten Million Dollars
($10,000,000) as an additional advance chargeable
against and to be recouped by deduction in
computing the Net Proceeds becoming due and
payable to Company hereunder in the manner
described below (the 'Third Advance').
Distributor acknowledges that once Distributor's
lien on and security interest in the Original WEA
Collateral is subordinated, all the Distribution
Rights shall be subject to the first priority lien
and security interest of Foothill in accordance
with and subject to the New Intercreditor
Agreement. The New Security Agreement shall in
all respects supersede the Original Security
Agreement and the New Intercreditor Agreement
shall in all respects supersede the Original
Intercreditor Agreement. Nothing contained in
this Agreement shall in any way limit, restrict or
impair any of Distributor's rights or remedies
under the New Security Agreement or the New
Intercreditor Agreement. In the event that any
provision in this Agreement shall in any way
conflict with any provision of the New Security
Agreement or the New Intercreditor Agreement, the
provision in the latter agreements shall prevail
and be controlling. Subject to the terms and
conditions hereof (including, but not limited to,
those regarding Early Termination), the Third
Advance and interest thereon shall be recouped in
thirty-six (36) consecutive Monthly Deductions
from Net Proceeds otherwise due Company hereunder,
with the first Monthly Deduction by Distributor to
be made against Net Proceeds which shall become
due and payable to Company on July 28, 1995, and
the last Monthly Deduction to be made against Net
Proceeds which shall become due and payable to
Company on June 26, 1998. All thirty-six (36)
Monthly Deductions shall consist of equal payments
of principal plus accrued interest at the Interest
Rate. The initial Interest Rate shall be the
applicable Interest Rate on the date Distributor
pays the Third Advance to Company hereunder which
shall thereafter be adjusted on the first day of
each calendar quarter during the Term commencing
on July 1, 1995, to take account of any changes in
Libor or the Prime Rate."
v. Paragraph 4 of the Distribution Agreement is
hereby amended by the insertion of a new
subparagraph (k), as follows:
"(k) So long as (i) Distributor shall have
not received a Notice of Termination, (ii) a
Default by Company shall not have occurred and be
continuing under this Distribution Agreement, and
(iii) an Event of Default (as defined in the
Credit Agreement) by Company shall not have
occurred and be continuing under the Credit
Agreement, on the first day of the Second Contract
Period, Distributor shall advance to Company the
sum of Ten Million Dollars ($10,000,000) as an
additional advance chargeable against and to be
recouped by deduction in computing the Net
Proceeds becoming due and payable to Company
hereunder in the manner described below (the
'Fourth Advance'). The Fourth Advance and
interest thereon shall be recouped in eighteen
(18) consecutive Monthly Deductions from Net
Proceeds otherwise due Company hereunder, with the
first Monthly Deduction by Distributor to be made
against Net Proceeds which shall become due and
payable to Company on January 31, 1997, and the
last Monthly Deduction to be made against Net
Proceeds which shall become due and payable to
Company on June 26, 1998. All eighteen (18)
Monthly Deductions shall consist of equal payments
of principal plus accrued interest at the Interest
Rate. The initial Interest Rate shall be the
applicable Interest Rate on the date Distributor
pays the Fourth Advance to Company hereunder which
shall thereafter be adjusted on the first day of
each calendar quarter during the Term commencing
on April 1, 1997, to take account of any changes
in Libor or the Prime Rate."
vi. Paragraph 4 of the Distribution Agreement is
hereby amended by the insertion of a new
subparagraph (l), as follows:
"(l) Company and Distributor agree that if
and to the extent the Advances and all applicable
interest thereon has not been recouped by or
repaid to Distributor as of the expiration or
termination of the Term, then, except in the event
Company shall exercise its option to cause the
early termination of the Term in which the
provisions of Paragraph 26(b) shall apply,
Distributor shall only have recourse for
recoupment of the Advances and the interest
thereon to the rights granted to Distributor under
the New Security Agreement to the collateral
described therein, and Distributor shall have no
right to proceed against Company for payment of
such deficiency. Upon the full and complete
recoupment or repayment of the Advances and all
applicable interest thereon, Distributor's second
priority lien on and security interest in such
collateral shall terminate and Distributor shall
execute UCC termination statement(s) and/or a
termination of mortgage of copyright with respect
thereto. Company shall pay all reasonable
expenses incident to the preparation, recordation
and/or filing of any such instruments."
j. Cross Defaults. A new Paragraph 12(a)(iv) shall be
added to the Distribution Agreement, as follows:
"(iv) An Event of Default (as defined in the
Credit Agreement) shall have occurred and be continuing
under the Credit Agreement and either (a) such Event of
Default shall not have been cured or waived by Foothill
within 30 days after the occurrence thereof or (b)
Foothill shall have accelerated the Obligations of the
Borrowers (as such terms are defined in the Credit
Agreement), whichever shall occur first."
k. Acceleration upon Default. Paragraph 13(b) of the
Distribution Agreement shall be deleted in its entirety
and in its place and stead shall be the following:
"(b) Upon a Default (i) by either party, the other
party (or in the case of 12(a)(iii) above, either
party) may, at its option, in addition to whatever
rights or remedies it may have at law, in equity or
otherwise, terminate the Term of this Agreement
effective immediately by sending written notice thereof
to the other party and/or (ii) by Company, Distributor
shall have the right to declare all outstanding
Advances immediately due and payable."
l. Sales and Fulfillment Services. A new Paragraph 28
shall be added to the Distribution Agreement, as
follows:
28. "Sales and Fulfillment Services.
(a) In addition to any other rights or
remedies of Company under the Agreement, Company
shall have the option to elect to assume full
responsibility for the following services which
were formerly the responsibility of Distributor
hereunder: (i) all sales of Videocassettes and
Interactive CDs embodying Company Product and (ii)
administration of order entry using Distributor's
existing systems (collectively, the 'Sales
Services'). Company may exercise such option by
giving Distributor written notice to that effect
at any time on or before November 30, 1997
('Notice to Elect Reversion of Sales Services').
As used herein, the 'Reversion Date' shall mean
the later of either (i) December 1, 1996, (ii) the
last Friday of the sixth full calendar month
following the date the Notice to Elect Reversion
of Sales Services is delivered to Distributor, or
(iii) the last Friday of any given month which is
specified in the Notice to Elect Reversion of
Sales Services to be the last month during which
Distributor shall perform the Sales Services
hereunder (provided Company shall not be obliged
to specify any such date in the Notice to Elect
Reversion of Sales Services). Company shall
assume full responsibility for providing the Sales
Services for all Company Product for which initial
shipments are scheduled during the Third Contract
Period. During the Third Contract Period,
Distributor shall continue to provide all the
services which were the responsibility of
Distributor to provide before the Reversion Date
except for the Sales Services. Distributor's
services during the Third Contract Period shall
include, without limitation, the billing and
collection of receivables, with all credit risk
being borne solely by Distributor; provided,
however, if during the Third Contract Period
Company shall sell Company Product to any
particular customer to whom Distributor then-
currently refrains from distributing (except on a
C.O.D. basis) all its other audio and video
products due to such customer's perceived poor
credit, as determined by Distributor in its
reasonable business judgment, then, unless and
until Distributor commences or resumes its
distribution of any of its other audio and video
products to such customer, Distributor agrees it
shall distribute Company Product to such customer
only conditioned upon Company's prior agreement to
solely bear the credit risk with respect Company's
sales of Company Product to such customer.
(b) Notwithstanding anything to the contrary
contained in Paragraph 4(a)(i)(A) hereof, the
Additional Distribution Fee chargeable on the net
amounts invoiced in any accounting month for all
Company Product distributed hereunder after the
Reversion Date shall be reduced to xxxxx percent
(xxx%) .
(c) Notwithstanding anything to the contrary
contained in Paragraphs 4(a)(i)(C) or (D) hereof,
the Additional Distribution Fee indicated in
Paragraph 28(b) hereof shall not be subject to
reduction by any volume discounts."
m. Special Customer Services. A new Paragraph 29 shall be
added to the Distribution Agreement, as follows:
"29. Special Customer Services. Company and
Distributor agree that Distributor may, from time
to time, provide and bill for special services to
its customers. Such special services may include,
but shall not be limited to, the following:
special price and inventory tagging; direct
Distributor-to-store shipments; special sized
shipments; and related distribution and packaging
services which are not customarily provided to
Distributor's customers ("Special Customer
Services"). Distributor may charge its customers
for Special Customer Services and the charge
therefor shall not be included in the Gross Dealer
Price or Net Proceeds if the following conditions
are met:
(i) Charges for Special Customer Services are maintained in
Distributor's detailed sales records for the transaction which
will be made available from time to time upon request by
Company.
(ii) Such charges are in addition to the price
determined by the Company for sales to the
customer and customers in the same class of trade;
(iii) The Special Customer Services are
provided at the request of the customer;
(iv) The charge for the Special Customer Services
must be applied by Distributor in a non-
discriminatory manner, i.e., the Special Customer
Services must be available to other of
Distributor's customers for the same charge; and
(v) If any of the Special Customer Services for a
customer are provided only for Company Product or
specific titles thereof, then the Company shall
have the right to approve such Special Customer
Services in writing prior to the provision
thereof.
Distributor agrees that upon the permitted return
of any Company Product for which Special Customer
Services were provided, all additional costs and
labor incurred in preparing the Company Product
for resale to other customers shall be borne by
and performed by Distributor. (This provision is
not intended to affect the 5 cents per unit handling
fee allowed pursuant to paragraph 3(a) (iii) of
the Distribution Agreement.) In addition, with
respect to such returned Company Product, any
amounts charged back to the Company shall not
include any charge back of the cost for the
Special Customer Services."
2. Miscellaneous. Except as expressly or by necessary
implication modified hereby, the Distribution Agreement
shall remain in full force and effect. This Fourth
Amendment to License and Distribution Agreement may not be
modified, amended or terminated without the written consent
of all parties hereto. This Fourth Amendment to License and
Distribution Agreement may be executed in counterparts, each
of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Fourth Amendment to License and Distribution Agreement as of the
date hereinabove first written.
Warner-Elektra-Atlantic Corporation
By: __________________________
Its: __________________________
LIVE Home Video Inc.
By: _________________________
Its: _________________________
LIVE America Inc.
By: ________________________
Its: ________________________
LIVE Film and Mediaworks Inc.
(formerly known as International Video Productions Inc.)
By: ________________________
Its: ________________________
<PAGE>
Vestron Inc.
By: ________________________
Its: ________________________
M:\G1C\WEAEXT.NEW
<PAGE>
Exhibit A
New Security Agreement
<PAGE>
Exhibit B
New Intercreditor Agreement
<PAGE>
Exhibit C
Anticipated Monthly Deductions
Accounting Month Amount of Monthly Deduction
<PAGE>
Exhibit D
Listing of Special Accounts
As of May 27, 1995
AMENDED AND RESTATED
INTERCREDITOR AGREEMENT
THIS AMENDED AND RESTATED INTERCREDITOR AGREEMENT
("Agreement") is entered into effective as of the 27th day of
May, 1995 by FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), and WARNER-ELEKTRA ATLANTIC
CORPORATION, a New York corporation ("WEA"), with reference to
the following facts:
R E C I T A L S
A. Pursuant to that certain Amended and Restated Loan
and Security Agreement, dated as of November 14, 1994, (the "Loan
Agreement"), among LIVE HOME VIDEO INC., LIVE FILM AND MEDIAWORKS
INC. (formerly known as International Video Productions Inc.),
LIVE ENTERTAINMENT INTERNATIONAL INC., LIVE AMERICA INC., and
VESTRON INC. (collectively "Borrowers") and FOOTHILL, Foothill
has extended certain credit to the Borrowers and their affiliates
which extensions of credit and all other Obligations of Borrowers
to Foothill, as such term is defined in the Loan Agreement, are
secured by a first priority security interest in and to all of
the presently owned and after acquired assets and property of the
Borrowers and their affiliates (the "Collateral"). The
outstanding principal amount of the Obligations shall not exceed
$50,000,000 at any one time without the consent of WEA.
B. WEA and LIVE HOME VIDEO INC., LIVE FILM AND
MEDIAWORKS INC., LIVE AMERICA INC. AND VESTRON INC. (collectively
"LIVE") have entered into that certain License and Distribution
Agreement dated as of May 11, 1992, as amended on June 8, 1992,
June 23, 1994, September 1, 1994 and May 27, 1995 (the
"Distribution Agreement"), pursuant to which, among other things,
WEA previously advanced $20,000,000 to LIVE, the outstanding
balance of which was $1,111,111 as of April 30, 1995, and is
concurrently herewith advancing an additional $10,000,000 to LIVE
and may hereafter advance an additional $10,000,000 to LIVE in
accordance with Paragraph 4(k) of the Distribution Agreement
(jointly the "Advances"), which such Advances are chargeable
against and being recouped by deduction in computing the "Net
Proceeds" in determining royalty payments due LIVE, arising from
WEA's sale of Videocassettes for Home Use and Interactive CDs
embodying Company Product throughout the Territory and during the
Term (as each is defined in the Distribution Agreement) and
pursuant to that certain New Security Agreement dated as of April
__, 1995, among LIVE and WEA (the "Security Agreement"), WEA has
been granted a second priority security interest in the
Collateral in which LIVE has an interest (the "WEA Collateral").
Capitalized terms not defined herein shall have the same meanings
as in the Security Agreement.
C. The parties recognize and agree that they will
benefit from the transactions contemplated in the Distribution
Agreement and in the Loan Agreement, and to that end, desire
pursuant to this Agreement to agree on various matters relating
to their respective security interests in the Collateral.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
following is hereby agreed to by the parties:
1. Acknowledgment and Consent. Foothill acknowledges
that, pursuant to the Security Agreement, LIVE have granted to
WEA, as security for repayment of the Advances and interest
thereon, a second priority security interest in and to the WEA
Collateral. Foothill hereby acknowledges and consents to LIVE
entering into the Fourth Amendment to the Distribution Agreement
and the Security Agreement and the grant by LIVE to WEA of a
second priority security interest in and to the WEA Collateral.
WEA acknowledges that, pursuant to the Loan Agreement, the
Borrowers and their affiliates have granted to Foothill, as
security for payment of the Obligations (as defined in the Loan
Agreement), a first priority security interest in and to the
Collateral. WEA hereby acknowledges and consents to the
Borrowers entering into the Loan Agreement and the foregoing
grant by the Borrowers and their affiliates to Foothill of a
first priority security interest in and to the Collateral.
2. Priority of Security Interest.
(a) Notwithstanding (i) any contrary provision of
the Loan Agreement, (ii) any priority in time of creation,
attachment or perfection of a security interest on, pledge of, or
mortgage, lien or other encumbrance on the Collateral by either
WEA or Foothill, or (iii) any provision of, or filing or
recording under, the Uniform Commercial Code of any state (the
"UCC"), Title 15 or Title 17 of the United States Code or any
applicable statute, rule or regulation of the United States, the
states thereof, their counties, municipalities or other
subdivisions, or any other applicable jurisdiction, WEA hereby
agrees, that, in accordance with this Agreement, any security
interest, pledge, mortgage, lien, charge or other encumbrance
granted to Foothill in and to the Collateral in order to secure
the repayment of the Obligations is and shall be superior and
prior in right to any security interest, pledge, mortgage, lien,
charge or other encumbrance of WEA, whether now existing or
hereafter created, in and to any or all of the Collateral,
regardless of the time WEA, Foothill or LIVE shall acquire rights
to any of the Collateral. Notwithstanding the foregoing, WEA is
not subordinating any security interest it may acquire at any
time in LIVE's rights under the Distribution Agreement
(including, without limitation, to any contract rights and
accounts receivable thereunder and proceeds in respect thereof)
to the extent of monthly fees and costs (but not Advances and any
applicable interest thereon) recoupable by or payable to WEA
pursuant to the Distribution Agreement. Provided, however, that
prior to receipt of notice by WEA from Foothill of the occurrence
and continuance of an Event of Default, as such term is defined
in the Loan Agreement, WEA may exercise its distribution and
recoupment right as to Advances and any applicable interest
thereon in respect of the Distribution Agreement and any other
amounts secured by the WEA Collateral under the Security
Agreement and the Distribution Agreement. If any Event of
Default for which WEA has received a notice in accordance with
the preceding sentence shall no longer be continuing, whether by
reason of a cure, waiver or otherwise, Foothill shall notify WEA
thereof and WEA may again exercise its distribution and
recoupment rights as provided in the preceding sentence. Except
as expressly provided in this section, WEA hereby acknowledges,
subject only to the terms and provisions of this Agreement, that
Foothill has a first priority security interest in and to the
Collateral and that WEA has a second priority security interest
in the Collateral.
(b) WEA absolutely, unconditionally and
irrevocably agrees that the subordination of WEA's security
interest or other encumbrances, in and to the Collateral shall
continue without termination until the complete satisfaction of
the Obligations, and said subordination shall apply without
limitation with respect to any security interest, charge, pledge,
mortgage, lien or other encumbrance, heretofore or hereafter
granted to Foothill in all or any part of the Collateral, whether
now owned or hereafter acquired. WEA and Foothill each agrees
that it will not contest the validity, perfection, priority or
enforceability of the other's security interest in the Collateral
and the WEA Collateral, respectively.
3. Foreclosure by Foothill. As long as any of the
Obligations remains outstanding, Foothill shall have the
exclusive right to exercise and enforce all rights with respect
to the Collateral for a period of one hundred eighty (180) days
from the date WEA receives notice from Foothill of the occurrence
and continuance of an Event of Default under the Loan Agreement.
Thereafter WEA shall have the right to exercise and enforce its
rights in the WEA Collateral, subject to Foothill's prior
security interest. Foothill agrees to give WEA ten (10) days'
written notice prior to exercising any right of foreclosure under
the Loan Agreement or the Loan Documents, as such term is defined
in the Loan Agreement. Any amount received by Foothill at the
foreclosure sale in excess of the amount of the then owing
Obligations shall be remitted to WEA so long as any of the
Advances or applicable interest thereon remain outstanding. WEA
shall not exercise any right of foreclosure with respect to the
WEA Collateral as long as any of the Obligations to Foothill
remains outstanding, and WEA hereby waives any right to compel
Foothill to marshal any of the Collateral.
4. Action by Foothill.
(a) Notwithstanding any foreclosure by Foothill
or any other enforcement action taken by Foothill against the
Collateral, (including, without limitation, the exercise by
Foothill of any right, power or remedy with respect to the
Collateral under
Title 15 or Title 17 of the United States Code or the Uniform
Commercial Code of any jurisdiction), Foothill shall permit WEA,
to exercise its offset right as to fees and costs (but not
Advances and applicable interest thereon) in respect of the WEA
Collateral under the Distribution Agreement (provided that WEA is
not in Default thereunder) and Foothill shall, in such event, to
the extent possible under existing law, cause any purchaser of
the Collateral to acknowledge the foregoing (and the continuing
security interests of WEA in and to the WEA Collateral to secure
such offset rights as to fees and costs (but not Advances and
applicable interest thereon) under the Distribution Agreement) in
writing. Foothill further agrees that so long as WEA is not in
Default under the Distribution Agreement, Foothill will not
interfere with or invoke or utilize any law that might prevent,
cause a delay in, or impede the performance or enforcement of,
any right of WEA under the Distribution Agreement. Nothing
herein shall be deemed to preclude the exercise by Foothill of
its rights as secured party at any time.
(b) In the event of a bankruptcy of LIVE,
provided the Secured Obligations are not satisfied in full and
WEA has not terminated the Distribution Agreement nor is in
continuing Default (as defined thereunder), Foothill agrees that
it will: (i) not seek or support the rejection of the
Distribution Agreement; (ii) not vote in favor of a Chapter 11
plan which does not provide for the continuation of the
Distribution Agreement for its term; and (iii) in the event the
Distribution Agreement is rejected over WEA's objection and
Foothill succeeds to all or any portion of the rights licensed to
WEA under the Distribution Agreement, license all such rights to
WEA on substantially the same terms provided in the Distribution
Agreement for the remaining term specified therein.
5. Bankruptcy Financing Issues. This Agreement shall
continue in full force and effect after the filing of any
petition by or against Borrowers, or any one of them, under the
United States Bankruptcy Code and all converted or succeeding
cases in respect thereof. All references herein to the Borrowers
shall be deemed to apply to the Borrowers as debtors-in-
possession and to a trustee for any of the Borrowers. If the
Borrowers shall become subject to a proceeding under the Code,
and if Foothill shall desire to permit the use of cash collateral
or to provide post-petition financing to Borrowers under the
Code, WEA agrees that: (a) adequate notice shall be deemed to
have been provided for such post-petition financing if WEA
receives notice thereof at least three (3) business days prior to
the earlier of (1) any hearing on a request to approve such use
of cash collateral or post-petition financing, or (2) the date of
entry of an order approving the same; and (b) no objection will
be raised by WEA to any such use of cash collateral or post-
petition financing from Foothill on the grounds of a failure to
provide adequate protection to WEA's junior security interest,
provided that WEA is granted a comparable junior security
interest in the post-petition WEA Collateral.
6. Release of the Collateral. Upon LIVE's full
and complete satisfaction of the Secured Obligations, WEA's
security interest in the WEA Collateral shall terminate and WEA
will execute, promptly following its receipt from LIVE, UCC
termination statements and/or a termination of mortgage of
copyright with respect thereto. Pursuant to the Security
Agreement, LIVE will pay all reasonable costs and expenses
incident to the preparation, recordation and/or filing of any
such termination instrument.
7. Representations and Warranties. Foothill and WEA
each represents and warrants as to itself that it has all
necessary power and has taken all action necessary to make this
Agreement, upon its execution, the valid, binding and enforceable
obligation of each party.
8. Modifications. No modification, amendment or
waiver of any provisions of this Agreement shall in any way be
effective unless the same shall be in writing and signed by all
of the parties hereto.
9. Further Assurances. Each of the parties hereto
agrees to execute and deliver such further instruments and
agreements and to take such further actions as the other party
hereto may at any time or times reasonably request, including
such documents as may be necessary under the UCC of any state, in
order to carry out the provisions and intent of this Agreement.
10. Notices. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed
to have been duly given if telecopied and acknowledged by
telecopy or delivered by messenger or courier delivery, or sent
by U.S. mail postage prepaid, by certified or registered U.S.
mail as set forth below or at such other address as may be
furnished in writing. WEA agrees to send Foothill and its
counsel courtesy copies of all notices sent pursuant to the
Security Agreement.
If to WEA Corp. WEA Corp.
111 North Hollywood Way
Burbank, California 91505
Attn: John T. O'Connell
Telephone No. (818) 840-6340
Telecopy No. (818) 840-6212
With a copy to: Warner Music Group, Inc.
75 Rockefeller Plaza
New York, New York 10019
Attn: Fred Wistow, Esq.
Telephone No. (212) 484-6964
Telecopy No. (212) 489-3342
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division
Manager
Telephone No. (310) 996-7000
Telecopy No. (310) 478-9788
11. Transferees, Successors and Assignees. All terms
and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
transferees, successors and assignees.
12. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall constitute an
original and all of which when taken together shall constitute
one and the same instrument.
13. Severability. Each provision of this Agreement
shall be interpreted in such manner as to make such provision
valid and enforceable under applicable law, but if any provisions
hereof shall be or become prohibited or invalid under any
applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity only, without thereby
invalidating the remainder of such provision or any of the
remaining provisions hereof.
14. Headings; Interpretation. Paragraph or other
headings contained in this Agreement are for reference purposes
only and should not affect in any way the meaning or
interpretation of this Agreement.
15. Integration. This Agreement sets forth the entire
agreement and understanding of the parties concerning the subject
matter of this Agreement and supersedes all prior agreements,
arrangements and understandings regarding such subject matter
between the parties hereto and may not be modified except by
written instrument signed by the parties hereto.
16. Governing Law and Attorneys' Fees. This Agreement
shall be governed by and construed in accordance with the laws of
the State of California. The parties agree that any matter
arising under this Agreement may be adjudicated in any court or
courts of the State of California or of the United States of
America, in California, and the parties hereby submit themselves
generally and unconditionally to the jurisdiction of such courts
in respect to any such matter and consent to service of process
by any means authorized by California law. The prevailing part
in any dispute, action or proceeding arising out of this
Agreement shall be entitled to recover its reasonable attorneys'
fees and costs and expenses incurred in such dispute, action or
proceeding.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
"Foothill"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_________________________________
Title:______________________________
"WEA"
WARNER-ELEKTRA ATLANTIC CORPORATION,
a New York corporation
By_________________________________
Title:______________________________
Each Borrower hereby acknowledges this Agreement.
LIVE HOME VIDEO INC.,
a Delaware corporation
By_________________________________
Title:______________________________
LIVE FILM AND MEDIAWORKS INC.,
a California corporation
By_________________________________
Title:______________________________
LIVE ENTERTAINMENT INTERNATIONAL INC.,
a Delaware corporation
By_________________________________
Title:______________________________
LIVE AMERICA INC.,
a Delaware corporation
By_________________________________
Title:______________________________
VESTRON INC.,
a Delaware corporation
By_________________________________
Title:______________________________
New Security Agreement
This New Security Agreement ("Agreement") is made as of
this 27th day of May, 1995 by LIVE Home Video Inc. ("LHV"), LIVE
America Inc. ("LAI"), and Vestron Inc. ("Vestron"), each a
Delaware corporation, and LIVE Film and Mediaworks Inc. ("LF&M")
(formerly known as International Video Productions Inc.), a
California corporation (hereinafter individually and collectively
referred to as the "Borrower"), on the one hand, and Warner-
Elektra-Atlantic Corporation, a New York corporation (hereinafter
referred to as the "Secured Party"), on the other hand.
R E C I T A L S
A. The Secured Party and Borrower have entered into a
License and Distribution Agreement ("Distribution Agreement") and
a letter agreement relating to Secured Party's use of Borrower's
trademarks and logos (the "Trademark Agreement"), each dated as
of May 11, 1992 and each as amended as of May 27, 1995
(collectively referred to hereinafter as the "License
Agreements");
B. Pursuant to the Distribution Agreement, Secured Party
has made previous advances to Borrower, will make an additional
advance of $10,000,000 to Borrower on or about June 26, 1995 (the
"Third Advance") and may make a further advance of $10,000,000 on
or about November 26, 1996 (the "Fourth Advance") to Borrower,
chargeable against and to be recouped by deduction in computing
the "Net Proceeds" in determining royalty payments due to
Borrower under the Distribution Agreement (collectively the
"Advances"); and
C. Pursuant to that certain Amended and Restated
Intercreditor Agreement (the "New Intercreditor Agreement"),
dated as of the date hereof by Foothill Capital Corporation, a
California corporation (Foothill Capital Corporation and its
successors and assigns are referred to as "Foothill"), and
Secured Party, Secured Party agrees to subordinate its first
priority lien in the Original WEA Collateral (as defined in the
Original Intercreditor Agreement) and Secured Party and Foothill
further set forth the parameters of the interrelationship between
Foothill's first priority lien in the Collateral (as defined
therein) and Secured Party's second priority lien in the
Collateral.
D. It is a condition precedent to the making of the Third
Advance contemplated by the Distribution Agreement that the
Borrower shall have entered into this Agreement.
NOW, THEREFORE, in consideration of the above-stated
premises and in order to induce the Secured Party to make the
Third and Fourth Advance contemplated by the Distribution
Agreement, the Borrower hereby agrees as follows:
1. Definitions.
(a) "Collateral" means, for Borrower, all of the
assets and property of every kind of such Borrower, including all
assets and property now owned and hereafter acquired by such
Borrower, whether tangible or intangible, wherever located or
situated, and whether or not in possession of such Borrower,
including but not limited to, all of such Borrower's right, title
and interest in and to the following: Accounts, Borrowers'
Books, Equipment, General Intangibles, Inventory, Negotiable
Collateral Securities, any money, or other assets which now or
hereafter come into the possession, custody, or control of
Secured Party, and the proceeds and products, whether tangible or
intangible, of any of the foregoing including the proceeds of any
completion bonds and the proceeds of insurance covering any or
all Collateral, and any and all Accounts, Borrowers' Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral
Securities, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
(b) "Collateral Documents" shall mean all present
and future security agreements, assignments, pledge agreements,
laboratory pledgeholder agreements, copyright mortgages,
trademark mortgages, subordination agreements, intercreditor
agreements, financing statements, landlord waivers, consents,
estoppel certificates and other documents granting liens or other
security interest to Secured Party pursuant to this Agreement,
including without limitation, the Laboratory Pledgeholder
Agreements, the Copyright Mortgages and the Trademark Mortgages
and all other security agreements, financing statements and
intercreditor agreements, to be delivered pursuant to the various
provisions of this Agreement.
(c) "Credit Agreement" shall mean the Amended and
Restated Loan and Security Agreement dated as of November 14,
1994 between Foothill, on one hand, and the Borrower and LIVE
Entertainment International Inc., on the other hand, and as such
may be amended, restated, refinanced or replaced from time to
time, provided that the principal amount outstanding thereunder
shall not exceed $50,000,000 at any one time.
(d) "Home Use" shall mean the sale of
Videocassettes (as defined below) to wholesale and retail
customers for purposes of resale or rental in retail outlets in
the Territory to the end public consumer for purposes of non-
commercial viewing only in private homes and residences without
any fee or admission charged to any of the viewers thereof,
except for payment to the wholesaler or retailer of the sales
price or rental fee for such Videocassettes. Home Use shall also
include all of Borrower's reserved rights under Sections 8(a)(i),
(iii), (iv), (v), (vi), (vii) and (viii) of the Distribution
Agreement. Home Use does not include the public performance,
diffusion, so-called "non-theatrical" or "educational"
exhibition, or broadcast of a Videocassette or other copy of any
of Borrower's products.
(e) "Laboratory Pledgeholder Agreement" shall
mean a Laboratory Pledgeholder Agreement or Laboratory Access
Letter in such form as shall be reasonably acceptable to Secured
Party, to be executed by Secured Party, a third party completion
guarantor (with regard to Films which are not yet completed, if
and as required under the terms hereof), one or more
Laboratories, and the applicable Borrower which owns, holds or
controls the rights in the Master located at such Laboratory,
with respect to each Laboratory.
(f) "Permitted Encumbrances" means the liens of
Foothill under the Credit Agreement subject to the New
Intercreditor Agreement, Permitted Ordinary Liens (as defined
below) and all other Permitted Liens (as such term is defined in
the Credit Agreement). Nothing contained herein shall restrict
Borrower from granting liens and encumbrances which are junior to
Secured Party.
(g) "Territory" shall mean the United States of
America, its territories and possessions, including Puerto Rico,
and U.S. military bases wherever located throughout the world.
(h) "Trademark Mortgages" shall mean the
instruments of transfer pursuant to which the Borrower grants
Secured Party a trademark mortgage and/or security interest in
their respective trademarks in form acceptable to Secured Party.
(i) "Videocassettes" shall mean any form or gauge
of videocassette intended solely for Home Use embodying a motion
picture or other copyrighted program containing an English
soundtrack and without non-English subtitles or containing a
fully musical or other non-dialogue soundtrack. To the extent
Borrower has exercised its rights to add to the Distribution
Agreement Interactive CDs (as defined therein), "Videocassettes"
shall also include such Interactive CDs.
(j) "Incorporated Definitions." The following
definitions shall be as defined in the Credit Agreement:
Accounts, Borrowers' Books, Copyright Mortgages, Equipment, Film,
Film Asset Acquisition Agreements, Film Assets, Film Rights,
GAAP, General Intangibles, Inventory, Laboratory, Masters,
Negotiable Collateral Securities and Subsidiary.
2. Security. Each Borrower hereby grants to Secured
Party a lien on and security interest in all currently existing
and hereafter acquired Collateral to secure the repayment to
Secured Party of the Advances including all accrued and unpaid
interest thereon as provided in the Distribution Agreement and
any other amounts (e.g., costs and expenses) provided for herein
(the "Secured Obligations"). The foregoing grant is referred to
herein as the "Security Interest" and shall mean a security
interest in and to the Collateral (subject only to the Permitted
Encumbrances) and shall have the meaning given to such term by
the Uniform Commercial Code of the State of California (the
"UCC") or any other applicable statute or regulation in any
jurisdiction relating to the Collateral. Secured Party
acknowledges that the Collateral is subject to the rights
heretofore and hereafter granted by Borrower to sublicensees and
subdistributors otherwise than in breach of the Distribution
Agreement to manufacture, distribute and exploit the Borrower's
Film Rights and to the Permitted Encumbrances or as permitted
herein. Secured Party covenants promptly to release its liens
and security interests upon Borrower's repayment of the Advances
and any interest then due thereon and any other amounts (e.g.,
costs and expenses) provided for herein.
3. Additional Instruments. Concurrently herewith, or
at any time thereafter as reasonably requested by Secured Party,
Borrower shall execute and deliver or cause to be executed and
delivered to Secured Party the Collateral Documents in the form
of Exhibit C hereto, and any such other instruments, documents or
agreements as Secured Party may deem necessary to perfect the
Security Interest hereunder or to otherwise effectuate the
purposes and intent hereof. If Borrower shall fail to execute or
deliver to Secured Party any further instruments, documents or
agreements under the provisions hereof within ten (10) days after
the same are delivered to Borrower by Secured Party, then
Borrower hereby appoints Secured Party as Borrower's irrevocable
attorney-in-fact, with the right, but not the obligation, to do
any and all acts and things necessary to execute, acknowledge and
deliver any and all such further instruments, documents or
agreements, in Borrower's name and on Borrower's behalf, which
appointment shall be deemed to be a power coupled with an inter-
est and shall be irrevocable.
4. Representations and Warranties. The Borrower
hereby represents and warrants to Secured Party as follows:
(a) Upon the last to occur of (i) the Secured
Party making the Third Advance to the Borrower, (ii) the Borrower
acquiring rights in the Collateral, (iii) Secured Party making
filings in the U.S. Copyright Office and with the Secretary of
State (and any local office) of each state in which any of the
Collateral is located (as set forth on Exhibit A) and (iv)
Secured Party giving written notice to any third party having
custody or possession of the Collateral, this Agreement, and the
other security instruments which will be delivered to Secured
Party by Borrower, will, subject to the Permitted Encumbrances,
collectively create a valid and perfected second priority
security interest in favor of Secured Party in the Collateral
which may be perfected upon the taking of such steps. Set forth
on Exhibit A hereto is a complete and correct list of the name
and address of each third party having custody or possession of
any portion of the Collateral. Borrower has no knowledge of any
portion of the Film Rights in which Borrower does not have valid
rights. Subject to the prior approval of Foothill (which has
been given pursuant to the New Intercreditor Agreement), Borrower
has the unencumbered right to grant to Secured Party the Security
Interest in the Collateral. Neither Borrower nor any other
person has conveyed to any other person any rights in or to the
Collateral or the proceeds thereof, and no person has or will
have any rights of any kind in or to the Collateral, except as
expressly acknowledged herein or as contained in the underlying
rights agreements pursuant to which Distributor acquired its
rights to the Collateral or any rights of any sub-distributors or
sub-licensees of Borrower as permitted by the Distribution
Agreement. The Collateral is unencumbered, except for the
Permitted Encumbrances.
(b) None of the existing or future obligations of
Borrower or any predecessor in interest are or will be secured by
a security interest in any asset or property which is included in
the Collateral which is equal or superior to the Security
Interest granted to Secured Party hereunder, other than the
Permitted Encumbrances.
(c) This Agreement constitutes a legal, valid and
binding obligation of the Borrower enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally.
(d) The corporations comprising Borrower are
corporations, duly organized, validly existing and in good
standing under the laws of their states of incorporation.
Borrower has the full power and authority to execute, deliver and
carry out the terms and provisions of this Agreement, and has
taken all necessary corporate action to authorize the execution,
delivery and performance thereof.
(e) The execution, delivery and performance of
this Agreement, and the consummation of the transactions
contemplated herein, and compliance with the terms and provisions
hereof, will not: (i) subject to the prior approval of Foothill
(given pursuant to the New Intercreditor Agreement), conflict
with or be inconsistent with, or result in any breach of, any of
the terms, covenants, conditions or provisions of any mortgage,
indenture, deed of trust, agreement or other instrument to which
Borrower is a party or by which it may be bound or to which it
may be subject or (ii) violate any provision of the certificate
of incorporation pursuant to which Borrower was formed or any of
the Borrower's by-laws, or (iii) result in any violation of or be
in conflict with any law, decree, order, statute, rule or
governmental regulation applicable to Borrower.
(f) There are no material actions, suits or pro-
ceedings, pending or threatened, against, affecting or relating
to Borrower or the Collateral before any court or governmental or
administrative body or agency which would adversely affect the
rights and Security Interest granted hereunder. Borrower is not
in default under any applicable statute, rule, order or
regulation of any governmental authority, bureau or agency having
jurisdiction over it, the result of which will materially impair
Borrower's ability to perform its obligations hereunder.
(g) No consent, license, approval, authorization,
registration or declaration with any governmental authority,
bureau or agency is required in connection with the execution,
delivery, performance, validity and enforceability of this
Agreement.
(h) Except for non-material discrepancies, which
will be corrected on such schedule as and when discovered, all of
the tangible property comprising the Collateral is located at the
locations set forth on Exhibit A attached hereto. Each
Borrower's chief executive office and principal place of business
is located at the address set forth below.
(i) All financial statements relating to LIVE
Entertainment Inc. that have been delivered to Secured Party have
been prepared in accordance with GAAP and fairly present LIVE
Entertainment Inc.'s financial condition as of the date thereof
and the results of operations for the period then ended, subject
in the case of such statements which are unaudited, to customary
year-end adjustments. There has not been a material adverse
change in the financial condition of LIVE Entertainment Inc.
since the date of the latest financial statements submitted to
Secured Party on or before the date hereof.
(j) All representations and warranties made by
the Borrowers (as defined in the Credit Agreement) in the Credit
Agreement were true and correct when made and no Event of Default
(as defined therein) by the Borrowers under the Credit Agreement
has occurred and is continuing as of the date hereof.
5. Covenants. Notwithstanding anything herein to the
contrary, the New Intercreditor Agreement (to which reference is
hereby made for a more detailed statement of the provisions
summarized below) provides generally that for so long as Foothill
under the Credit Agreement has not been paid in full and the
commitments thereunder terminated, Foothill under the Credit
Facility may consent to the grant by Borrower of liens and
encumbrances which are senior to the liens and encumbrances of
Foothill and of Secured Party; provided, that, no such liens and
encumbrances shall be granted without obtaining the prior written
consent of Secured Party, except that no consent of Secured Party
is required to the extent such liens and encumbrances are granted
in the ordinary course of Borrower's business (each such lien or
encumbrance, a "Permitted Ordinary Lien"), and any consent to
such grant by Foothill shall automatically, and without further
action on the part of Secured Party hereof, be deemed to be a
consent to a grant of a Permitted Ordinary Lien by Secured Party
hereunder (and Secured Party has granted to Foothill a power of
attorney to the foregoing effect).
Borrower hereby covenants and agrees as follows:
(a) Borrower shall furnish to Secured Party, in
form satisfactory to Secured Party, all such information in
connection with the Collateral as Secured Party may reasonably
request, including, without limitation, extracts from, or copies
of, all books, records, contracts, statements and all other data
of every kind in each case as it relates to the Collateral, and
will promptly (and, in all events within twenty (20) days) advise
Secured Party in writing of any change in Borrower's name,
principal place of business or principal executive office.
(b) Borrower shall promptly give written notice
to Secured Party of all lawsuits and proceedings affecting the
Collateral or any of the rights of Borrower with respect thereto,
that are pending or commenced or are threatened in writing to
Borrower, which seek damages of, or would involve the loss of
revenues, in excess of $100,000. Borrower shall, at its own
expense, appear in and defend any and all such actions and
proceedings and shall obtain and furnish to Secured Party from
time to time, upon demand, all information, documents and
subordinations of claims or liens as Secured Party may reasonably
require, consistent with this Agreement, to maintain the priority
of the Security Interest of Secured Party under this Agreement.
In this regard, with respect to any security interest or
encumbrance in any asset or property which is included in the
Collateral and which is equal or superior to the Security
Interest granted to Secured Party hereunder, Borrower will defend
the Collateral against the claims and demands of all other
parties claiming by, through or under Borrower, and will keep the
Collateral free and clear from all security interests or other
encumbrances created by, through or under Borrower, except to the
extent of the Permitted Encumbrances.
(c) Borrower shall pay all out-of-pocket costs
and expenses, including, without limitation, reasonable
attorneys' fees and disbursements and court costs, incurred by
Secured Party following the occurrence of an Event of Default in
connection with the enforcement of the rights of Secured Party
hereunder or otherwise in connection with the realization upon
the Collateral, whether or not suit is filed. Such costs and
expenses, together with interest thereon, shall be payable by
Borrower to Secured Party immediately upon demand by Secured
Party, and shall be secured and recoupable as provided herein.
(d) Borrower shall, at all times, defend and
indemnify and hold Secured Party harmless from and against any
and all liabilities, claims, demands, causes of action, losses,
damages, settlements, judgments or recoveries resulting from any
breach of the warranties, agreements or covenants made by
Borrower herein, and from any suit or proceeding of any kind or
nature whatsoever and all costs and expenses, including
reasonable attorneys' fees and disbursements and court costs, in
connection with any of the foregoing brought by any third party
against Secured Party arising from or connected with the
transactions contemplated by this Agreement or any of the docu-
ments, instruments or agreements to be executed pursuant hereto
or any of the rights and properties assigned to Secured Party
hereunder (except any such liability arising out of the gross
negligence or willful misconduct of Secured Party), and from any
suit or proceeding that Secured Party may deem reasonably
necessary to institute against any other person or company for
any reason whatsoever to protect or enforce the rights of Secured
Party in connection herewith, including reasonable attorneys'
fees and court costs and all other costs and expenses incurred by
Secured Party, all of which shall be paid by Borrower on written
demand and shall be secured by Secured Party's Security Interest
in the Collateral.
(e) Borrower shall diligently and duly perform
and observe all the terms, covenants and conditions on its part
to be performed and observed under and pursuant to all agreements
entered into by the Borrower in connection with the Collateral.
(f) Borrower shall give Secured Party prompt
written notice of all defaults or Events of Default (as defined
below) under any of the terms or provisions of this Agreement and
of any pending litigation or proceeding which (i) seeks to
challenge this Agreement or any portion of the Security Interest
granted hereunder or (ii) may materially adversely affect any
portion of the Collateral.
(g) Borrower shall pay all taxes, assessments and
other charges of every kind and nature which may be levied or
assessed against the Collateral.
(h) Borrower shall not, without first having
procured the prior written consent of Secured Party, wind up,
liquidate or dissolve its affairs, or sell, lease, or otherwise
dispose of the Collateral except in the ordinary course of
business. Borrower shall not grant any security interest in the
Collateral which has a priority equal to or greater than the
Security Interest granted to Secured Party hereunder except for
Permitted Encumbrances or as may be permitted by Foothill and
consented to by Secured Party if such consent is required herein.
(i) Borrower shall not change its name, corporate
identity or location of its chief executive office or principal
place of business without written notice to Secured Party within
twenty (20) days of the date of any such change and the timely
delivery to Secured Party of such Uniform Commercial Code
financing statements or other instruments, documents or
agreements as may be necessary or appropriate to perfect, or to
continue or maintain the perfection and priority of, the liens
and Security Interest granted to Secured Party hereunder or as
may be reasonably requested by Secured Party in connection
therewith.
(j) In order to perfect or continue the
perfection and priority of Secured Party's security interest in
the Collateral, Borrower will, promptly upon reasonable request
by Secured Party, execute and deliver any document, use its best
efforts to obtain any necessary agreements or consents by third
parties, give any notices, execute and file any financing
statements, mortgages, collateral assignments or other
instruments, documents or agreements, all in form and substance
reasonably satisfactory to Secured Party, and take any other
actions which are necessary or, in the reasonable judgment of
Secured Party, desirable to establish, perfect or give notice of
Borrower's ownership of or interest in any item of Collateral.
(k) Subject to the reserved rights of Borrower
set forth in Section 8 of the Distribution Agreement, and
Borrower's rights of Recall set forth in Section 4(f) of the
Distribution Agreement, Borrower shall not, without first having
procured the prior written consent of Secured Party, sell,
transfer, assign, exchange or otherwise dispose of the Collateral
or any interest therein except in the ordinary course of
business.
(l) If Borrower shall fail to do any act it has
covenanted to do hereunder, not cured within thirty (30) days
after receipt of written notice thereof from Secured Party,
subject to the terms of the New Intercreditor Agreement, Secured
Party shall have the right to make any payments and do any other
acts reasonably necessary to protect its Security Interest in the
Collateral, including, without limitation, the rights to pay,
purchase, contest or compromise any encumbrance, charge or lien
which in the judgment of Secured Party appears to be prior or
superior or equal to the Security Interest granted hereunder and
is not permitted hereunder, and appear in and defend any action
or proceeding purporting to affect its Security Interest in the
Collateral, and in exercising any such powers or authority the
right to pay all reasonable expenses (including, without
limitation, the reasonable fees and disbursements of legal
counsel) incurred in connection therewith. Borrower hereby
agrees to reimburse Secured Party for all reasonable payments
made and expenses incurred, which amounts shall constitute a part
of the Secured Obligations and shall be secured under this
Agreement. Secured Party shall have no obligation to make any of
the foregoing payments or perform any of the foregoing acts.
(m) Borrower concurrently will provide Secured
Party with copies of the following items provided to Foothill
under the Credit Agreement (and will provide to Secured Party as
long as this Agreement is in effect whether or not the Credit
Agreement is in effect):
(i) Monthly borrowing base statement.
(ii) Monthly, quarterly profit/loss statement.
(iii) Monthly, quarterly cash flow statement.
(iv) Monthly compliance certificate.
(v) Monthly film acquisition agreement schedule.
(vi) Monthly film right package analysis.
(vii) Quarterly compliance calculation worksheets.
(viii) Forms 10-Q (quarterly reports) and Form 10-K
(annual reports) for LIVE Entertainment Inc.
6. Events of Default. The following occurrences
shall constitute Events of Default hereunder.
(a) Any failure by Borrower to have repaid the
Advance, and all interest thereon, by May 29, 1998, unless such
obligation is excused because of Secured Party's Default (as
defined in the Distribution Agreement).
(b) An Event of Default (as defined in the Credit
Agreement) by Company shall have occurred and be continuing under
the Credit Agreement and either (a) such Event of Default shall
not have been cured or waived by Foothill within 30 days after
the occurrence thereof or (b) Foothill shall have accelerated the
amounts due under the Credit Agreement, whichever shall occur
first.
(c) Secured Party's termination of the
Distribution Agreement pursuant to Section 13(b) thereof.
(d) A breach by Borrower of any provision of this
Agreement which would materially and adversely affect Secured
Party's rights hereunder, the value of the Collateral or priority
of the Security Interest therein, provided, however, that
(i) Borrower is given written notice of any such breach and
thirty (30) days in which to effect a cure thereof (if such
breach is capable of cure) and, if such cure is effected, such
breach shall not thereafter constitute an Event of Default
hereunder and (ii) Secured Party will, to the extent such breach
may be remedied by Secured Party's exercise of remedies short of
foreclosure, attempt first in good faith to remedy the breach by
actions short of foreclosure.
(e) Any Borrower shall: (i) file a voluntary
petition in bankruptcy or a voluntary petition or answer seeking
liquidation, reorganization, arrangement, or any other relief
under the Federal Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"), or under another act or law pertaining to
insolvency or debtor relief, whether State, Federal, or foreign,
now or hereafter existing; (ii) enter into any agreement
indicating its consent to, approval of, or acquiescence in, any
such petition proceeding; (iii) apply for or permit the
appointment by consent or acquiescence of a receiver, custodian
or trust of such Borrower, or for all or a substantial part of
its property; (iv) make an assignment for the benefit of
creditors or not pay its debts as they become due; or (v) take
any corporate action in furtherance of the foregoing.
(f) There is filed against any Borrower an
involuntary petition in bankruptcy or seeking liquidation,
reorganization, arrangement, readjustment of its debts or any
other relief under the Bankruptcy Code, or under any other act or
law pertaining to insolvency or debtor relief, whether State,
Federal or foreign, now or hereafter existing and such proceeding
shall not be dismissed, bonded or discharged within sixty (60)
days from the institution thereof; any Borrower shall suffer or
permit the involuntary appointment of a receiver, custodian or
trustee of such Borrower or for all or a substantial part of its
property; or any Borrower shall suffer or permit the issuance of
a warrant of attachment, execution or similar process against all
or any substantial part of the property of such Borrower.
7. Remedies.
(a) Upon the occurrence and during the
continuance of any Event of Default, Secured Party may exercise
any and all of the following rights (subject to the provisions of
the Intercreditor Agreements and section 7(b) below):
(i) Secured Party may exercise any remedies
available to a secured party under the UCC, including the remedy
of foreclosure, provided it gives Borrower at least (10) business
days' prior written notice of the time and place of the
foreclosure sale. Borrower hereby acknowledges that such notice
is commercially reasonable in view of the nature of the
Collateral and of the business in which Borrower and Secured
Party are engaged.
(ii) Secured Party may, at its option, do and
perform all acts and things reasonably necessary for the proper
preservation and protection of the Collateral and its rights
hereunder, all at the sole cost and expense of Borrower, which
amount (including, without limitation, court costs and reasonable
attorneys' fees) so expended shall constitute Secured Obligations
and be secured as provided herein. In this connection, Borrower
hereby designates, constitutes and appoints Secured Party as its
true and lawful attorney-in-fact with the full power (which power
shall be deemed coupled with interest and shall be irrevocable)
to enforce, following the occurrence and during the continuance
of an Event of Default, in the name of Borrower or Secured Party,
or otherwise, all the rights, benefits and privileges of Borrower
in, to and under the Collateral.
(iii) Upon advance notice to Borrower of
no less than ten (10) days, Secured Party shall have the right to
take possession of the Collateral by entering upon the premises
of Borrower or any other place or places where the Collateral
described in Section 2 hereof is located and kept and making
copies thereof, through self-help and without judicial process,
without first obtaining a final judgment and opportunity for a
hearing on the validity of Secured Party's claim and without any
obligation to post any bond or to pay rent to Borrower; provided,
that any such entering shall be effected only by a nationally
recognized firm of independent certified public accountants or
such other person or entity on whom Borrower and Secured Party,
negotiating in good faith, may agree.
(iv) Secured Party shall have the right: to
lease, license, sell, encumber or otherwise deal with or dispose
of the Collateral and/or such rights therein as have not been
disposed of on the date of such Event of Default (subject to the
obligations of Borrower under (i) the underlying rights
agreements pursuant to which Borrower acquired rights to the
Collateral and (ii) any licenses or assignments granted by
Borrower prior to such Event of Default with respect to the
Collateral in the ordinary course of its business); to execute on
behalf of Borrower any and all such instruments, agreements or
documents as may be necessary or desirable to in any manner
protect, preserve, exercise or compromise Secured Party's rights
in and to the Collateral. Secured Party shall not be obligated,
however, to make any demand or present or file any claim or take
any action authorized hereby.
(v) Secured Party may pursue any and all
other remedies available to it under other applicable laws or in
equity.
(vi) If an Event of Default occurs under
subsection 6(a), (c) or (d) above, Secured Party shall have the
right (i) to distribute and exploit the Collateral, (ii) to be
paid a distribution fee for services rendered in connection with
such distribution equal to 8.5% of the Gross Dealer Price (as
such term is defined in the Distribution Agreement, and as such
percentage may be subject to adjustment as set forth in Paragraph
4(a)(i) of the Distribution Agreement, including without
limitation the adjustment for the Average Volume Discount as set
forth therein) and to be reimbursed for all of its costs and
expenses as contemplated by the Distribution Agreement (in each
case, whether or not the Distribution Agreement remains in
effect), it being understood that to the extent the Distribution
Agreement remains in effect and Secured Party receives the
"Distribution Fee" payable thereunder and is reimbursed
thereunder for its costs and expenses in connection with its
distribution of the Collateral, Secured Party shall not be
entitled to a separate fee or expense reimbursement hereunder,
and (iii) to retain 100% of the proceeds derived from the
distribution and exploitation of the Collateral (after deducting
such distribution fee and reimbursement of such costs and
expenses) until such time (but only until such time) as the
Secured Obligations are paid in full. Borrower hereby
acknowledges that the distribution fee contemplated by this
paragraph (vi) is reasonable in expectation of the services that
would be performed by Secured Party in distributing the
Collateral as contemplated hereby.
Provided, however, if a breach or default by Borrower hereunder
or under the Distribution Agreement is not an Event of Default,
Secured Party shall only be entitled to exercise those remedies
specified in subsection 7(a)(v) above or in other provisions of
this Agreement other than under this Section 7.
(b) Notwithstanding anything to the contrary set
forth in the Distribution Agreement:
(1) Except with respect to an Event of
Default under subsection 6(d) above, concurrent and simultaneous
with the completion of any foreclosure proceeding under
subsection 7(a)(i) above or self help sale under subsection
7(a)(iv) above in which there is an actual sale of all or any
portion of the Collateral to Secured Party or a third party,
Secured Party shall terminate the Distribution Agreement.
(2) If an Event of Default occurs under
subsection 6(d) above, but the Distribution Agreement remains in
effect, Secured Party shall be entitled to retain 100% of the
proceeds derived from the continued distribution and exploitation
of the Collateral (including its Distribution Fee and costs and
expenses all as provided in the Distribution Agreement), only
until such time as the Secured Obligations are paid in full, at
which time the Collateral shall immediately be reassigned to
Borrower free and clear of any other rights, interests or
security interests of Secured Party or any third party (subject
only to the Distribution Agreement) and the Security Interest
shall terminate.
(c) Borrower shall assist Secured Party in
exercising Secured Party's rights hereunder as Secured Party
shall reasonably require.
(d) Secured Party shall incur no liability prior
to any foreclosure action taken by it if any action taken by it
or on its behalf in dealing with the Collateral hereunder shall
prove to be in whole or in part inadequate or invalid, and after
the occurrence and during the continuance of an Event of Default
hereunder, Borrower agrees to hold Secured Party free and
harmless from and against any and all loss, damage, liability and
expense, including costs and reasonable attorneys' fees, to which
Secured Party may be put or which it may incur in connection with
dealing with the Collateral hereunder (other than such as arise
out of Secured Party's gross negligence or willful misconduct).
(e) Upon the occurrence and during the
continuance of an Event of Default, provided that Secured Party
has elected to terminate the Distribution Agreement in accordance
with its rights to do so as set forth therein, Borrower may not,
without the prior written consent of Secured Party, not to be
unreasonably withheld, enter into any agreement with respect to
the Pledged Library Rights except if such agreement is expressly
made subject to the Security Interest granted to Secured Party in
this Agreement and subject to termination at the election of the
purchaser of the Collateral, upon completion of a foreclosure
sale of the Collateral.
8. Purchase of Borrower's Inventory. In the event
Secured Party exercises any remedy of foreclosure after an Event
of Default hereunder, and subject to the New Intercreditor
Agreement, Secured Party shall have the right, within ten (10)
days of the consummation of such foreclosure, to purchase all of
Borrower's finished goods inventory of Videocassettes relating to
the Films which are of merchantable quality (the "Inventory"), at
the lesser of (i) Borrower's actual cost of manufacture plus
shipping and handling or (ii) the then prevailing current market
cost of duplicating and packaging services necessary to produce
Videocassettes of the same quality as Borrower's Videocassettes,
plus shipping and handling. In the event Secured Party exercises
the foregoing right to purchase the Inventory, Borrower hereby
grants to Secured Party, and its successors in interest to the
Inventory, and non-exclusive license to use the tradenames
"Family Home Entertainment," "LIVE" and "LIVE Home Video" for the
purpose of selling and reselling the Inventory for Home Use only
in the Territory, which license shall terminate when all of the
then existing Inventory is sold. Should Secured Party choose not
to purchase the foregoing described inventory within said ten
(10) day period, notwithstanding anything to the contrary
contained herein, including Secured Party's exclusive rights to
distribute and exploit Videocassettes following a foreclosure
sale in which Secured Party acquires the Collateral, Borrower can
then sell the Inventory to third parties without notice or
compensation to Secured Party. If for any reason Secured Party
is not offered the opportunity to purchase the Inventory or is
prevented by a court or applicable laws from exercising its
rights under this Section 8, Borrower shall not be entitled to
sell the Inventory as otherwise provided under this Section 8.
9. No Deficiency for Unpaid Secured Obligations.
Borrower and Secured Party hereby agree that following an Event
of Default, Secured Party shall only have recourse for recoupment
of the Advance and the other Secured Obligations to its rights
granted herein in the Collateral and the monies due Borrower
under the Distribution Agreement, and following the exercise by
Secured Party of any remedy of foreclosure hereunder or self help
sale under subsection 7(a)(4) above, Secured Party shall have no
right to proceed against Borrower for payment of a deficiency, if
any, between the amount of Secured Obligations and the amount
actually received by Secured Party pursuant to such foreclosure.
10. No Restriction of Rights Under Distribution
Agreement. Nothing contained in this Agreement shall in any
manner restrict or otherwise limit Borrower's reserved rights in
the Collateral under the Distribution Agreement.
11. New Intercreditor Agreement. Concurrent with the
execution and delivery of this Agreement, Secured Party and
Foothill will enter into the New Intercreditor Agreement.
Secured Party hereby agrees and consents to Borrower (i) entering
into financing agreements with Foothill or with other lenders, or
(ii) substituting new lenders for Foothill under Borrower's
existing financing agreements up to a principal amount of
$50,000,000. In the event that under any new financing agreement
Borrower grants to the lenders thereunder a security interest in
the Collateral, Secured Party agrees at the request of such
lenders promptly to enter into an intercreditor agreement in form
and substance similar to the New Intercreditor Agreement and
promptly to cooperate with Borrower in the grant of a security
interest to such lenders, in form, substance and priority senior
to Secured Party similar to that granted to Foothill in the
Credit Agreement.
12. No Cross-Default. Any breach or default under the
Distribution Agreement between Borrower and Secured Party, which
does not also constitute an Event of Default hereunder, shall
not, under any circumstance, constitute an Event of Default
hereunder nor give rise to any remedies by Secured Party
hereunder.
13. Notices. All notices, requests, demands or other
communications to the respective parties hereto shall be in
writing and shall be deemed to have been given when received by
the party to which sent and shall be addressed to the parties at
their addresses designated adjacent to their signatures
hereinbelow, with copies to the parties' counsel at the addresses
indicated below.
14. Release of Collateral. Upon the full and complete
satisfaction of the Secured Obligations, the Security Interest in
the Collateral shall terminate and Secured Party shall execute,
promptly following its receipt from Borrower, UCC termination
statement(s) and/or a termination of mortgage of copyright with
respect thereto. Borrower shall pay all reasonable expenses
incident to the preparation, recordation and/or filing of any
such instruments.
15. Assignment. All rights of Secured Party hereunder
shall inure to the benefit of its permitted successors and
assigns. This Agreement shall not be assigned by Borrower.
16. No Implied Waivers. No delay or omission on the
part of Secured Party in exercising any right, power, privilege
or remedy created by, connected with or provided hereunder, shall
be construed as or deemed to be an acquiescence or operate as a
waiver thereof or limitation upon the right of Secured Party to
exercise, at any time and from time to time, any right, power,
privilege or remedy provided by this Agreement. All rights and
remedies herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law or equity.
17. Remedies Cumulative. Subject to the restrictions
on remedies set forth herein, all rights and remedies of Secured
Party hereunder shall be cumulative of all other rights and
remedies given to Secured Party by this Agreement, the
Distribution Agreement, any other instruments, documents or
agreements executed in connection herewith, by law or otherwise.
18. Continuing Security Interest. This Agreement
shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the payment and
performance in full of all Secured Obligations, and (ii) be
binding upon and inure to the benefit of the Borrower, the
Secured Party and their respective permitted successors,
transferees and assigns (until the Secured Obligations are
satisfied in full).
19. Miscellaneous. This Agreement may not be
modified, amended or terminated without the written consent of
all parties hereto. Nothing contained in this Agreement will be
construed so as to require the commission of any act contrary to
law, and wherever there is any conflict between any provisions of
this Agreement and any present or future law, ordinance or
regulation, the latter will prevail, but in such event such
provision affected will be curtailed and limited only to the
extent necessary to bring it within legal requirements, and the
other provisions of this Agreement will not be affected but will
remain in full force and effect. This Agreement shall be
governed by and construed in accordance with the laws of the
State of California. The parties agree that any matter arising
under this Agreement may be finally adjudged or determined in any
court or courts of the State of California or of the United
States of America, in California, and the parties hereby submit
themselves generally and unconditionally to the jurisdiction of
such courts and of any of them in respect to any such matter and
consents to service of process by any means authorized by
California law. This Agreement may be executed in counterparts,
each of which when taken together shall constitute one and the
same Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
The "Borrower": Address:
LIVE Home Video Inc. 15400 Sherman Way
Suite 500
Van Nuys, California 91406
Attn: Steven E. Mangel, Esq.
By:___________________________
Its:__________________________
LIVE America Inc. 15400 Sherman Way
Suite 500
Van Nuys, California 91406
Attn: Steven E. Mangel, Esq.
By:___________________________
Its:__________________________
Vestron Inc. 15400 Sherman Way
Suite 500
Van Nuys, California 91406
Attn: Steven E. Mangel, Esq.
By:___________________________
Its:__________________________
LIVE Film and Mediaworks Inc. 15400 Sherman Way
Suite 500
Van Nuys, California 91406
Attn: Steven E. Mangel, Esq.
By:___________________________
Its:__________________________
With a copy to: Sidley & Austin
555 West Fifth Street
Suite 4000
Los Angeles, California 90013
Attn: Gary J. Cohen, Esq.
AGREED TO AND ACCEPTED:
WARNER-ELEKTRA-ATLANTIC CORPORATION 111 North Hollywood Way
Burbank, California 91505
Attn: Mr. John T. O'Connell
By: __________________________
Its: _________________________
With a copy to: Warner Music Group, Inc.
75 Rockefeller Plaza
New York, New York 10019
Attn: Fred Wistow, Esq.
<PAGE>
Exhibit A
Forming a part of the Security Agreement dated as of
May 27, 1995 between LIVE Home Video Inc., LIVE America Inc. and
Vestron Inc., each a Delaware corporation, and LIVE Film and
Mediaworks Inc. (formerly known as International Video
Productions Inc.), a California corporation, as Borrower, and
Warner-Elektra-Atlantic Corporation, a New York corporation, as
Secured Party.
LOCATION(S) OF TANGIBLE PERSONAL PROPERTY COLLATERAL
111 N. Hollywood Way Midwest Distribution 515 Huehl Road
Burbank, CA 91505 4001 W. Green Tree Northbrook, IL 60062
Milwaukee, WI 53209
5440 Fulton Industrial 500 Wall Street 6060 Commercial
Blvd SW Glendale Heights, IL 60139 Northbrook, IL 60062
Atlanta, GA 30336
1 Warner Court 555 Huehl Road Rally Packaging
P.O. Box 421 Northbrook, IL 60062 325 Wegner
Bridgeport, NJ 05014 McHenry, IL 60050
500 Lindburg Lane 1200 Northwestern 3818 W. Grandville
Northbrook, IL 60062 Gurnee, IL 60031 Gurnee, IL 60031
7472 Chapman 39000 Seven Mile Rd. 2553 Edgington
Garden Grove, CA 92641 Livonia, MI 48152 Franklin Park, IL 60131
12601 Southfield Rd. 32500 Van Born Rd. 225 Gilman Road
Detroit, MI 48223 Wayne, MI 48184 Wheeling, IL 60090
17311 Fusion Way 12400 Wilshire Blvd., 9201 Faulkner Lake Road
Country Club Hills, IL #1200 North Little Rock,
60478 Los Angeles, CA 90025 AR 72117
2280 Ward Avenue 3233 E. Mission Oaks Blvd. 720 Landwehr Avenue
Simi Valley, CA 93065 Camarillo, CA 93012 Northbrook, IL 60062
222 West Sivert Court 12802 Knott Avenue
Bensenville, IL 60106 Garden Grove, CA 92641
Exhibit "B"
Forming a part of the Security Agreement dated as of
May 27, 1995, between LIVE Home Video Inc., LIVE America Inc. and
Vestron Inc., each a Delaware corporation, and LIVE Film and
Mediaworks Inc. (formerly known as International Video
Productions Inc.), a California corporation, as Borrower, and
Warner-Elektra-Atlantic Corporation, a New York corporation, as
Secured Party.
COLLATERAL DOCUMENTS
(attached hereto)
EXHIBIT 11
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Six Months
Ended June 30, Ended June 30,
1994 1995 1994 1995
PRIMARY
Earnings:
Net (loss) income . . . . . . . . . . . . . . .$(1,369) $1,059 (4,207) $5,963
Less preferred dividends. . . . . . . . . . . . 940 716 1,877 1,575
Less accretion in redemption value of
LIVE Series B Cumulative Convertible
Preferred Stock. . . . . . . . . . . . . . . . 1,800 1,259 2,400 2,830
Net (loss) attributable to common stock . . . .$(4,109) $ (916)$(8,484) $1,558
Shares:
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . 2,419 2,442 2,419 2,432
Net (loss) income per common share . . . . . . . $(1.70) $(0.38) $(3.50) $ 0.64
FULLY DILUTED
Earnings:
Net income. . . . . . . . . . . . . . . . . . . -- $1,059 -- $5,963
Shares:
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . -- 2,442 -- 2,432
Assuming conversion of Series B and Series C
Preferred Stock . . . . . . . . . . . . . . . -- 10,887 -- 12,090
Weighted average number of common shares
outstanding as adjusted . . . . . . . . . . . -- 13,329 -- 14,522
Net income per common share. . . . . . . . . . . -- $ 0.08 -- $ 0.41
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 51,268
<SECURITIES> 0
<RECEIVABLES> 8,649
<ALLOWANCES> (17,594)
<INVENTORY> 7,211
<CURRENT-ASSETS> 0
<PP&E> 6,909
<DEPRECIATION> (5,528)
<TOTAL-ASSETS> 165,187
<CURRENT-LIABILITIES> 0
<BONDS> 55,027
<COMMON> 121
0
4,212
<OTHER-SE> 30,328
<TOTAL-LIABILITY-AND-EQUITY> 165,187
<SALES> 66,961
<TOTAL-REVENUES> 68,053
<CGS> 51,935
<TOTAL-COSTS> 8,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 826
<INCOME-PRETAX> 6,563
<INCOME-TAX> 600
<INCOME-CONTINUING> 5,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,963
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.41
</TABLE>
